Jim Armitage: Merger medicine is needed for the City’s flagging brokers
Who does more drugs, City brokers or professional athletes? Until today, Ed Warner was probably the best man to answer that question.
The polymath who for years has juggled the chairmanship of Panmure Gordon and UK Athletics has stepped down from the stockbroker, ostensibly to pursue other business interests.
He must be frustrated at the state in which he leaves Panmure. Despite having a cracking good brand, it finds itself deep in the red with the prospect of running out of cash in two years unless it can raise more.
Much of the blame is laid at the feet of its Qatari major shareholder, which seems set against merging or taking the business private to restructure out of the public spotlight.
Perhaps it doesn’t want to crystallise the catastrophic paper loss it’s made since first investing in 2009.
"There are twice as many brokers in London as there should be."
<p>Jim Armitage</p>
But the fact is, as one veteran of the industry puts it, there are twice as many brokers in London as there should be.
Their old core market of trading shares on the secondary market is pretty much dead, as institutional investors deal direct with each other and do their own research.
That means small brokers’ hordes of young analysts and traders are, it pains me to say, an expensive luxury.
There’s been some bloodletting already, but what these firms really need is to merge and turn themselves into a small number of bigger specialist merchant banks. That would concentrate into fewer, better businesses the relatively small number of experienced players with the ability to bring deals to company boardrooms.
It happened in the 1970s, when the City was on its knees, driving the old broking partnerships together into businesses with ever-longer names: remember Scott Goff Layton?
With Panmure’s brand and pedigree, it should be one of the winners this time around. To use a sporting metaphor Warner would be familiar with, if it doesn’t want to collapse altogether, the industry needs consolidation on steroids.
EU’s financial fix
London’s insurance chiefs are chuckling in disbelief at the latest sticking point to David Cameron’s EU talks.
European leaders, it seems, are refusing any concession that would put Britain’s financial industry at an advantage.
For insurers, this is ironic in the extreme. Because, when it comes to Europe’s Solvency II rules measuring how much safety cushion cash insurers have, it is Britain that’s hugely disadvantaged.
UK officials were totally outplayed in the years of negotiations that forged the tests, leaving British insurers now looking unfairly weak against rivals such as Axa.
Word is, Mario Draghi realises the likes of France have gamed the system and is mulling a new set of tests.
I hope we do stay in the EU, but we must be better at negotiating with our neighbours next time.
