The turmoil in the financial world is proving to be a big business opportunity for some City stockbrokers and investment banks to grab business from competitors.
At the top end of the market, the recently announced sales of Dresdner Kleinwort, Merrill Lynch and the European business of Lehman Brothers are widely expected to prompt many FTSE 350 companies to reconsider their corporate broker and financial adviser relationships. Further down the scale, the economic woes of many small- and mid-cap stockbrokers are sending some lients out to look for extra help.
None of them wants to be in the position of HBOS, which found itself in a forced sale at a time when its brokers at Lehman were distracted by their own firm’s bankruptcy.
While it has become customary for companies to hold beauty contests for their corporate broking accounts every couple of years, corporate broking firms of all sizes report that requests for new pitches are up sharply.
“There is a real opportunity for those that keep it simple and focus on client services,” said Oliver Hemsley, chief executive of Numis, as his company reported on Thursday that its full-year trading would be profitable and in line with market expectations. The mid-sized stockbroker serves as broker to 10 FTSE 350 clients, up from zero two years ago, he said.
The battle to steal clients is particularly intense among brokers who serve small- and mid-cap companies, because they pay retainers. Now the initial public offering market has dried up, those fees are more important and poaching is the only way to increase them.
Companies looking for new brokers and advisers are heading in several, often contradictory, directions.
Some companies already working with bulge-bracket banks look to add a smaller City firm to strengthen their relationship with the local equity markets.
“The larger companies, the FTSE 350, which would have gone with two bulge bracket firms, have started to diversify,” said Andrew Monk, chief executive of Blue Oar, which recently picked up a joint broking assignment for Marston’s, the brewer. “The mindset that big is beautiful has changed. Now it is: small is valuable.”
Other companies are moving in the other direction – that is, to brokers affiliated with large retail banks in the hope of finding security and access to debt.
The important question clients are asking these days is: “When things get tough, are you going to be there for us?” said Tom King, head of Europe, Middle East and Africa banking for Citigroup. “Who is actually going to have the firepower and capability to be there for me?”
With debt financing hard to come by, some companies are shifting their advisory and brokerage assignments to banks they think will be able to lend.
Broker Hoare Govett has picked up a dozen broker accounts in the year since it was purchased by Royal Bank of Scotland, bringing its total to 89. “The scarcity of debt is going to make it easier for us to leverage off RBS’s relationships,” said Paul Nicholls, the broker’s chief executive.
A third category of companies is simply looking for new brokers and advisers because they fear their existing providers are distracted or unstable.
“People are increasingly looking at the risk profile of their broker,” said Phil Adams, chief executive of Altium Securities, which recently added four broking clients to bring its total to 30. “Our pitch is: we’re here; we’re private; we have a simple model,” he said.
The number of potential switches could be huge. Lehman Brothers has 18 corporate broking accounts and Merrill Lynch has 75 UK-listed clients, according to Hemscott. Dresdner ranks in the top 15 in the Hemscott tables and is corporate broker to 77 companies.
In spite of the fevered atmosphere, broker relationships are often intensely personal. Many companies may opt to remain with the team they know, at least until the dust settles.
Lehman’s European equities and banking teams have been picked up by Nomura.
If corporate broking and advisory teams start to strike out for greener pastures, customers may follow. Collins Stewart recently hired Dresdner’s 12-member investment company team and have already picked up nine clients.
Would-be suitors are playing it cool, keeping in touch with potential corporate clients by lunches and phone calls. Banks with cash are also not shy about telling companies access to credit would probably improve if they went to the same institution for advice and corporate brokerage services.
“Everybody is looking at their client list right now and saying we’ve got X thousand clients and a shrinking balance sheet,” said a bulge-bracket banker. “There is no way I would finance someone else’s deal right now.”