Wall Street firms are cutting costs and tightening belts these days — just try ordering a new BlackBerry at Bank of America. This could accelerate a cost-cutting trend that was already gaining momentum: The outsourcing of junior research and investment banking activities to India, where analysis and pitchbooks come far more cheaply than in the United States.
“At the end of the day, it’s people like us who are going to be running Wall Street,” a vice president at Amba Research, which is based in New York but has half of its employees in Bangalore, told Bloomberg News in an article about the financial outsourcing phenomenon.
Amba’s clients are mostly hedge funds. Bloomberg also visited the offices of Pipal Research, a six-year-old firm in the Indian city of Gurgaon where analysts do research for investment banks including Goldman Sachs. Goldman publishes reports that are “co-branded” with Pipal but don’t indicate that the analysts are in India, Bloomberg said.
The economics behind the trend are simple. Firms such as Morgan Stanley or UBS can hire analysts in India for one-third or even one-quarter of the salaries they would have to pay in the United States or Europe.
But the relationships can get complicated. Investment banks worry that clients will eventually cut them out of the equation and go directly to India.
Goldman seems to be having second thoughts. A firm spokesman told Bloomberg that Goldman is cutting its ties with Pipal after two and a half years, because clients want more contact with the analysts who write its research.
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