August 11, 2014 3:25 pm

Boutique banks take market share from bigger rivals

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On a rainy day in October 2008, exactly a month after the collapse of Lehman Brothers wreaked havoc on the world’s financial system and on his personal wealth, the bank’s former UK head of investment banking, Michael Tory, teamed up with Benoit d’Angelin to launch his own independent advisory business, now named Ondra Partners.

The corporate finance group, which advises clients on mergers and acquisitions and strategy, epitomises a growing crop of specialist firms which has emerged and rapidly expanded in London since the height of the financial crisis, often taking staff and market share from large investment banks.

Ondra’s most recent signing is General David Richards, former chief of the defence staff in the British army, as a special adviser. General Richards will advise Ondra on internal leadership questions and will talk to clients about geopolitics.

The growth of US independent advisers such as Moelis, as well as newer UK-based boutique banks such as Ondra, Zaoui & Co and Robey Warshaw, run by star rainmakers, mean that boutiques took 31.4 per cent of all European M&A fees in 2013, up from 18.1 per cent a decade earlier. But the share slipped slightly to 30.2 per cent in the first half of this year, the first sign that the big banks might be fighting back.

While some of the most high-profile specialist firms are those focused on M&A advice, a wide variety of independent groups have been gaining traction in areas as diverse as wealth management and broking.

Underpinning this shift and the fragmentation of full-service banking are changes in regulation that are forcing banks to make commercial decisions about which businesses and clients are most attractive to serve.

The Volcker rule in the US restricts banks’ proprietary trading activities, while under Basel III requirements banks have to increase the capital they hold and reduce leverage to strengthen their balance sheets.

Bankers’ pay has also come under more scrutiny and last month the Bank of England and Financial Conduct Authority unveiled proposals for a stricter regulatory regime that will see reckless bankers sent to jail and banks forced to defer full payment of bank managers’ bonuses by at least seven years.

“The universal banking model for all but a few is officially bust,” says John Wall, chief executive of Marex Spectron, a commodities broker. “Given the different approach, a lot of people have taken a different view of their future.”

Banks such as Credit Suisse, Deutsche Bank and Barclays have largely abandoned commodities trading, while Morgan Stanley and JPMorgan have both sold physical commodities trading units this year. This has helped players such as Marex Spectron, which increased gross commissions 10 per cent to £296.6m during 2013.

The universal banking model for all but a few is officially bust

- John Wall, Marex Spectron

Broker research is also in flux as the FCA’s push to separate the cost of trading shares from that of producing research is forcing banks to drastically rethink their business models.

And on the wealth management side, the retail distribution review – designed to improve standards of advice and increase fee transparency – has caused banks to rethink which customers are attractive.

Royal Bank of Scotland, Barclays and HSBC have overhauled their wealth management divisions, in some cases pulling out of particular markets. Barclays has suffered an exodus of senior people from its wealth management division.

Meanwhile, new independent wealth managers such as Vestra Wealth, which launched in 2008, and Signia Wealth, which followed two years later, have expanded rapidly.

These growing independent firms believe that they are an attractive place to work because they are entrepreneurial and their partnership structure has a more direct link between effort and reward.

Nathalie Dauriac-Stoebe, founder and chief executive of Signia Wealth, says: “I’m a big believer in skin in the game. People want to be entrepreneurial and be imaginative and proactive in their approach with clients.”

The boutique model has attracted prominent bankers such as Eric Daniels, the former chief executive of Lloyds, who works as principal at StormHarbour.

“The bigger trend is moving away from the institution to the individual,” says Gary Paulin of Aviate Global, an equity brokerage he helped set up in 2007. “Banks are just a group of individuals where those who are good subsidise those who are bad, creating disillusionment and disenfranchisement.”

For clients, scandals surrounding mis-selling of products, tax evasion and rigging of key benchmarks has undermined confidence in the big banks, says James Fleming, chief executive of Arbuthnot Latham, a private bank.

And new technology has levelled the playing field, says James Barty, strategy director at the British Bankers’ Association. “Advances in IT mean that the kind of stuff only bulge brackets could afford to do you can now buy off the shelf.”

Investment bankers argue that boutique firms are not necessarily taking away their business but often provide additional services alongside them. In M&A, there are only a handful of individuals whose personal brand and network is strong enough to thrive without the backing of the parent bank, says a managing director at a large US bank.

But there is no doubt however that the independent specialist firms are here to stay.

“It makes the market more competitive and that is a good thing from a client’s perspective,” said Chris Cummings, chief executive of The City UK, the lobby group...

Big names in little companies

General David Richards: Ondra Partners’ latest signing is General Sir David Richards, former chief of the defence staff in the British army, as a special adviser. He was created a life peer earlier this year, taking the title Baron Richards of Herstmonceux. He will advise Ondra, set up by former Lehman Brothers bankers, on internal leadership questions and will talk to clients about geopolitics.

Nathalie Dauriac-Stoebe: One of the new wave of fast-expanding wealth management boutiques, Signia Wealth was founded in 2010 by Nathalie Dauriac-Stoebe, a former senior partner at Coutts. Signia has grown to manage assets of more than £2bn and has 120 clients. Ms Dauriac-Stoebe says her staff “want to be entrepreneurial and imaginative . . . in their approach to clients”.

Eric Daniels: The boutique model of banking has attracted prominent bankers such as Eric Daniels, the former chief executive of Lloyds, who since 2012 has worked as principal and senior adviser in the London office of StormHarbour. The firm was founded by former Citigroup bankers Antonio Cacorino and Fredrick Chapey and now employs a team of almost 200.

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