Bloomberg News

Oriel Shuns Takeovers After Hoare Govett as Rivals Merge

March 23, 2012

Oriel Securities Ltd., the London- based brokerage that this year walked away from a tie up with Hoare Govett Ltd., said it plans to remain independent as rivals in the industry merge or shutter operations.

“We did have a look at Hoare Govett as we’re in the same space, but we decided to stick with our strategy to grow organically,” Paul Thompson, deputy chief executive officer and head of equities at Oriel, said in an interview. “We are very adequately capitalized for what we do.”

London’s stockbrokers have shrunk as Europe’s debt crisis and competition from international firms squeeze revenue and fees. Royal Bank of Scotland Group Plc agreed to sell Hoare Govett, its corporate broking unit, to New York-based Jefferies Group Inc. last month. Canadian broker Canaccord Financial Inc. (CF) completed its 253 million-pound ($400 million) takeover of Collins Stewart Hawkpoint Plc this week.

While business has improved amid the best start to a year for global equity markets since 1998, Thompson said brokers are not yet out of the doldrums and will probably face further takeovers. The MSCI World Index (MXWD) has rallied more than 10 percent in 2012 and average trading volume for the U.K.’s FTSE 100 Index (VOLUKX) has climbed 5.6 percent compared with the final quarter of 2011, data compiled by Bloomberg shows.

Oriel fired 18 employees last week as part of an annual process to contain costs, the executive said. Headcount had climbed to as many as 157 staff from 90 over the past 18 months.

‘Remain Profitable’

“We are determined to remain profitable,” Thompson said from Oriel’s London-based office. “Our secondary revenues so far this year are strongly up on the same period last year.”

He said Oriel is still hiring on an “opportunistic basis” and made three appointments across its sales and research divisions this month. The company hired Altium Capital Ltd.’s Chloe Ponsonby for the corporate sales team and took Richard Thompson, an oil and gas analyst, and Andrew Small, a senior equity salesman, from Evolution Securities Ltd.

Altium announced it was closing its securities division in November, saying the “outlook remains bleak for U.K.-centric brokers.” Investec Plc (INVP) agreed to buy Evolution Group Plc, the parent company of Evolution Securities, for 233 million pounds in September.

“It’s only so long that some of these firms can stay in the game,” Thompson said. “If you are not making a profit and hemorrhaging cash, it’s tough.”

Brokers of all sizes have had to contend with the Markets in Financial Instruments Directive, or Mifid, which came into force in 2007 and shifted trading on to different platforms, raising costs.

By the end of 2009, multilateral trading facilities, or MTFs, had taken about 20 percent of all trading in Europe from traditional bourses such as London Stock Exchange Group Plc. (LSE) About a third of the turnover in equities has also moved into so-called dark pools, algorithmic trading and platforms offering clients direct market access, according to analysts.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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