Deal drought leads to survival of fittest

WHY would anyone want to buy a City stockbroker right now?

London’s brokerages are in a lamentable state after a dismal first half of the year and feel they are being squeezed until their pips squeak.

The uncertainty and volatility plaguing markets has caused a deal drought among UK corporates that has slashed broking revenues.

Adding to the woes is a surfeit of broking boutiques creating chronic overcapacity in the sector, while depressed commission levels and rising salary costs are further threats.

Broking chiefs have warned for months that consolidation has to come soon as weaker firms are squeezed out of a shrinking market.

That is now translating into a “survival of the fittest” scenario as brokers become takeover targets – or face extinction.

The first casualties are already becoming apparent. Arbuthnot Securities, the broking arm of an investment bank and wealth management group, is restructuring after it fell to a £3.4m first-half pre-tax loss. Matrix Group is cutting about two thirds of its broking operation.

But this squeeze also puts far healthier brokers in the spotlight for acquisitive groups to snap up cheaply. Evolution’s solid reputation and broad client base make it an attractive buy, while the security of a larger group would bolster it against the current uncertainty.

Whether this news heralds the start of a shakedown in City broking remains to be seen. But such deals may just produce a healthier overall industry in the end.