Oppenheimer Europe to Hire Corporate Bankers as Wealth Lure Dims

(Bloomberg) -- Oppenheimer & Co., the U.S. investment bank, plans to grow its corporate finance and debt capital markets business in Europe after the Brexit vote and new market regulations made starting a wealth management unit in the region less attractive.

"We don’t know what agreement the U.K. will have with the EU," said Max Lami, 47, a former Goldman Sachs Group Inc. banker. "If it becomes an offshore center in a hard Brexit, wealth management could be an interesting business. Or it could be a soft Brexit, which would add more complexity."

Instead, the CEO said he wants to hire in businesses such as debt and arranging borrowing for companies. Oppenheimer began building its European unit nine years ago around a securities business in equity and fixed income and corporate finance services focused on the technology, consumer and health care industries. The firm is known in the region for helping to bring Israeli companies public in the U.S., including Wix.com and CyberArk Software.

Wealth management in the U.S. generates 67 percent of the firm’s global revenue, but Lami said he won’t set up that business for at least two years in Europe amid uncertainty about the deal Britain will secure with the European Union and regulations known as MiFID II, which are coming into force in January and unbundle research and trading costs.

The firm, which oversees about $77 billion of client money, cut the number of broker dealers to 15 from 25 in London in advance of the new rules and the CEO says the regulations will create more transparency, despite trade reporting becoming more onerous.

"For the last several years, a research analyst report was paid for within a bundled offering and we could not attach a value to it," said Lami. "We need to resize the research offering to the size of the buy-side’s wallet. That means less firms doing research but overall better quality content."

Fund managers have to pay for brokers’ research and trading execution separately under MiFID II. That will spur more than $300 million in research budget cuts in the U.S. and Europe, according to consulting firm Greenwich Associates, as fund managers become more discerning about the services they purchase.

One unintended consequence will be a drought in small and mid-cap companies’ research as brokerage firms reallocate resources, according to Lami. That would impact the volume of initial public offerings and the liquidity of capital markets in Europe, he said.

"If large banks are the only ones producing research, it is very likely that they will focus on large-cap," said Lami. "With fewer research providers on small and mid-caps, we could see less companies going for an initial public offering as an option to raise capital. There will be an impact on the liquidity of markets because the small and mid-cap will be less traded."