‘MiFID II to exacerbate dip in analyst coverage’

Bloomberg

The biggest bank in the Nordic region says Europe’s revision of market rules is likely to exacerbate a slump in the number of analysts covering smaller companies, making it harder for them to raise capital.
Nordea Bank AB says the firms affected by the development should consider commissioning their own research to help “alleviate the risk of falling off investors’ radar screens entirely.”
There are only about half as many equity analysts covering publicly traded European small and medium-sized firms now as there were before the 2008 financial crisis, Nordea estimates in a report published. The smallest firms — those with market values of no more than 400 million euros ($466 million) — have less than one analyst covering them, on average.
Revisions to Europe’s Markets in Financial Instruments Directive, or MiFID II, were introduced in January to improve transparency. Part of the overhaul included requiring brokers to unbundle their services, in other words, investors are now charged separately for having their trades executed and for research.
According to Nordea, the revision is making it less profitable for brokerages to provide research on smaller companies. The bank has set itself the goal of becoming biggest provider of paid company analysis in the Nordics and already has a large pipeline of companies interested in the service, according to local media.
Nordea says that some listed companies risk ending up “with little or no analyst coverage.” And without that coverage, “their shares will not be valued by fundamentals and instead be more at the mercy of retail investor flows or media reporting.”