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Breakingviews: Wall Street moves to Mumbai

Driving efficiency: US banks are concluding that
number-crunching can move offshore

Source: is Europe's leading financial commentary service

Date: June 2003

By Christopher Hughes

Banks have been casting around for ways to cut the cost of their research departments. And JPMorgan has come up with a radical new idea: setting up a new research office in Mumbai.

The Indian unit will coexist with the US bank's existing operations but it still looks suspiciously like an experiment to see whether research can be produced offshore, where unit costs are 75% lower.

Making equity research pay for itself is the holy grail of Wall Street. Eliot Spitzer, the New York attorney general, has banned banks from exploiting the synergies between investment banking and research on the grounds that they are harmful to investors. And this has caused a big headache for the banks because investment banking has basically been footing the research bill.

Only commission from stock trading remains as a means of funding research. But trading margins are coming under pressure too, and it is not clear that the commissions cake is big enough to feed all the analysts out there.

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