Departing brokers leave locals to flourish

Frank Aldridge, managing director of Craigs Investment Partners

The retreat of global players from New Zealand is giving larger locally owned sharebrokers the chance to grow their businesses in spite of the financial crisis and shrinking sharemarket.

While there has been a procession of overseas investment banks either shutting up shop in New Zealand or at least giving up on their equities broking activities here, the bigger locally owned outfits are upbeat about their future.

All point out however, that New Zealand equities are becoming a smaller part of their rapidly diversifying businesses.

Securities Industry Association chairman and chief executive of First NZ Capital Scott St John acknowledges there has been a reduction in the head count in the institutional broking end of the market which has been dominated by overseas players.

"In times of adversity what you tend to do is take the ball back into the scrum or you sort of bias back to your home market and the reality is New Zealand is not a market that is particularly relevant by any global measure."

However, at the retail end of the market, St John doesn't believe numbers have changed that much.

That is in spite of the local market being "unambiguously on a downward track in terms of capitalisation".

"Obviously if prices go down and volumes go down then a broker per se on their agency business is getting hit twice. So sure, some of those revenues have gone down, but what you have seen is the industry has diversified its revenue base into things like offshore equities, currency advice, custody, and various other things. It's a far more diversified industry than it was say 20 years ago."

While the industry may be smaller in terms of head count, St John says First NZ's client base has actually been growing.

Forsyth Barr chief executive Neil Paviour Smith points out there has been some consolidation in the retail end of the market with his own firm having bought out a couple of smaller players last year.

Since the beginning of last year, the firm has added 28 private client advisers and now has 100, and has also gone from 11 branches throughout the country to 15.

"That expansion is a reflection of the desire from a number of well established advisers throughout the market and the wider investment industry to join us and our desire to expand in an environment that is challenging," he says.

His firm's aggressive expansion "reflects ultimately a view that New Zealand has got a very bright future, our capital markets have got prospects worth investing and the investment cycle will turn".

Macquarie New Zealand senior sharebroking and investment adviser at Ian Witters believes the consolidation seen at the smaller end of the industry is related to a greater burden of compliance, the need to source research on offshore equities and a broad range of investment products and the requirement to spread overheads across a greater range of revenue streams.

Paviour Smith says tough economic conditions make it easier to expand.

"As an employer it's a fantastic market."

First NZ was one of just two firms competing for top graduates this year.

"Normally we're fighting with knives for these top graduates, and not just with New Zealand companies."

First NZ is also hiring experienced advisers and is finding "really talented people that are exploring career change that may have been imposed on them".

In February local shareholders repurchased a 50 per cent stake in the ABN Amro Craigs retail brokerage from owners Royal Bank of Scotland.

"Obviously RBS pulling out has provided us with an opportunity to reshape the firm," says Frank Aldridge managing director of Craigs Investment Partners, as the firm is now known.

"There may or may not be other global players depart but if the firms leave or close down there's experienced skilled individuals that will be picked up by other parties and continue servicing the New Zealand market."

The Shareholders Association's Bruce Sheppard says from a client's point of view, the calibre of any firm's advisers is the most important factor.

"The retail sector is only as well served as its skill in picking the personality and skill set of the individuals involved and that has not changed for years."

SHAREBROKER SHAKE-UP

* In February, New Zealand staff members bought the 50 per cent of ABN Amro Craigs they did not already own from the Royal Bank of Scotland and renamed it Craigs Investment Partners.
* In October last year, Citigroup downsized its local equities business, closing the Wellington research division and consolidating operations in Auckland.
* The same month Forsyth Barr bought Timaru brokerage Munro Hubbard.
* In February last year Wellington boutique stockbroker Waddell Johnston McCarthy sold out to McDouall Stuart.