Europe's banks and stockbrokers may be forced to cut or scrap equity research and trading units to reduce their exposure to a market that is an increasing drag on their ailing businesses.
Most have already cut staff in equities trading and, with no signs of a recovery, are starting to question more fundamentally their commitments to what used to be one of their core services.
"If the lower volumes of the last five years continue, the industry will inevitably see further withdrawals and reductions that will change the competitive landscape in the equities market," said Sam Ruiz, who heads Nomura's equity unit in the Europe, Middle East and Africa region.
The financial crisis has unnerved investors who have responded by cutting their investments in shares, causing the global equity market to trade at about a third lower than the pre-crisis highs for the last three years.
Already battered trading volumes dipped another 20 per cent in the first quarter of the year, according to the World Federation of Exchanges, while competition between firms means commissions on executing trades are razor-thin.
HSBC's top equities boss, Patrick George, predicted last month volume would never return to the heady, pre-crisis days, making an industry shakeout inevitable.
For many smaller stockbroking firms — a historical cornerstone of the London financial market and which rely on commission for revenue — the long-term downturn and small margins are a killer.
Some have fallen prey to consolidation. South African investment bank Investec, for instance, bought securities house Evolution last year, and broker Collins Stewart Hawkpoint has been absorbed by Canada's Canaccord.
The pain is easier to take for large investment banks, but they too have to make tough choices about which businesses to support with their costly capital. And the equities business has already been a victim in some cases.
Royal Bank of Scotland (RBS) ditched most of its equities operations this year, while Italy's UniCredit last year got rid of its Western European equities team, opting for a joint venture with another firm.
The future of Credit Agricole-owned broker Cheuvreux is in serious doubt after the French bank's plan to sell 20 per cent of its equities trading unit to China's Citic Securities collapsed last month.
The equities business is costly because of the specialist research that is needed to attract clients — a burden that does not generate a lot of revenue in itself.
But regulators have not hit it with more stringent capital requirements to the same degree as the fixed-income business, making banks reluctant to part with it.
"Equities is cheap because it doesn't use much balance sheet, unlike fixed-income, and firms like to keep an equities team in case there is a sudden recovery in the [new share listing] pipeline," said one head of equity trading at a large European investment bank.
Moreover, equities businesses as a whole are not entirely unprofitable. Equity derivatives typically have better margins. But most banks do not want to offer this product without having a fuller stocks business to go hand in hand.
The top European shares traders are Credit Suisse, Morgan Stanley, Nomura and UBS, followed by Bank of America Merrill Lynch, Barclays Capital, Citigroup, Deutsche Bank, Goldman Sachs and JP Morgan.
Some firms, including smaller ones, are still hiring, counting on a boost as competition withers. British stockbroker Numis last week hired six in equity sales and research, including staff from RBS.
Morgan Stanley analysts have said that global overcapacity in investment banking needs to shrink about seven per cent for banks to reach double-digit return targets.
This was equivalent to $10-$12 billion of operating costs and about $1 trillion (Dh3.67 trillion) in balance sheet capacity.
But less competition in equities would not necessarily mean higher commissions, Nomura's Ruiz said.
"Instead, those firms will share more of the market and they can generate the volume to make the business work for them," said Ruiz.