View from City Road: Brokers face nervous Christmas
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Your support makes all the difference.INSTEAD of dreaming of a white Christmas many stockbrokers are having nightmares in Threadneedle Street. While some are looking forward to their firm's Christmas parties, others fear a call from their boss.
Banks have taken to announcing large- scale job losses almost as a matter of management pride. Barclays, TSB, Midland and Royal Bank of Scotland have announced thousands of job losses in recent weeks.
The investment banks and securities houses have so far been spared. Since the large-scale cutbacks - for example Morgan Grenfell's wholesale closure of its stockbroking business just before Christmas four years ago - retrenchment has tended to be more gradual. Groups of four or five regularly leave large firms each month.
Rumours of large-scale redundancies are dampening spirits throughout the Square Mile. Volumes have often been too low for the industry as a whole to make money. The cut-off point is usually said to be about 500 million shares a day.
Commission income too continues to be under pressure. Institutions increasingly deal net - direct with market makers - paying commission on only 68.9 per cent of business, down from 75.8 per cent in 1991.
Against this background it is natural that securities houses should look closely at costs. Employees are their biggest cost item, accounting for 28 per cent of the total in 1991.
Warburg's recent interim results - which revealed a collapse in pre-interest profits on investment banking from pounds 65.2m to pounds 20.4m - alerted a number of observers to the difficulties of the industry as a whole. If the biggest firm was finding life so tough what was happening to the rest? While the market's recent rise has brought some relief, there remains an underlying anxiety.
Warburg's costs - excluding Mercury Asset Management, it employed 2,350 people in the UK at an average cost of pounds 60,800 last year - are among the highest in the industry. But it is not alone in paying high salaries - Smith New Court, which made pre- tax profits of pounds 6.7m in the first half, employed 1,170 staff at an average cost of pounds 58,000 last year.
One of the dangers is that staff numbers have been creeping up, after hitting a low of 20,000 two years ago. They rose by 1,000 last year. For example, BZW employs 2,800 in the UK, against 1,900 a year ago. About 700 of that increase is accounted for the transfer of Barclays' treasury operations.
The industry is unlikely to be spared the knife, even at this time of year.
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