Monday October 17, 2011
Merged stockbroking players reap synergies, but smaller ones are also doing well
By TEE LIN SAY
PETALING JAYA: With RHB Capital Bhd getting the nod from Bank Negara to commence merger negotiations with OSK Investment Bank, industry players are beginning to wonder whether more consolidation will take place in the sector, particularly among standalone stockbrokers.
Banking analysts say a merger between the stockbrokers would certainly reap more synergies, as the players in this field are relatively small. However, they consider the possibility of more consolidation, especially among standalone stockbrokers, as highly unlikely as many are doing very well due to the low-cost structure of the stockbroking industry and their niche markets.
Investment banks, with their more complex structure and expensive cost of operations, are more likely to merge.
“Actually, more and more retailers are opening trading accounts. It's just a matter of how active they are. This is a sector that is growing,” said a banker.
Currently there are seven standalone stockbroking companies in Malaysia, and six stockbrokers which have had a (1+1) merger status.
The (1+1) status allows the stockbrokers to open branches, provide electronic access facilities and undertake structured product offerings without having to undergo a merger.
The standalone stockbrokers comprise BIMB Securities Sdn Bhd, FA Securities Sdn Bhd, Innosabah Securities Sdn Bhd, Jupiter Securities Sdn Bhd, KAF-Seagroatt & Campbell Securities Sdn Bhd, Malacca Securities Sdn Bhd and SJ Securities Sdn Bhd.
The brokers with a (1+1) mergers include A.A. Anthony Securities Sdn Bhd, Inter-Pacific Securities Sdn Bhd, JP Apex Securities Sdn Bhd, M&A Securities Sdn Bhd, Mercury Securities Sdn Bhd and TA Securities Holdings Sdn Bhd.
“These brokerages may be small but they have their following. A.A. Anthony, for example, is doing well and has a strong foothold in Penang,” said the banker.
He added that the niche brokers just needed to have a few very good remisiers to generate sufficient revenue for the company.
“The top five remisiers of these small brokerages control 80% to 90% of their revenues,” said the banker.
Ideally, if these stockbrokers were to merge, their capital base would enlarge and they can offer larger financing facilities without having to get help from the banks. This enables the stockbroker to increase its market share and revenue and reduce competition.
The bigger capital base allows the merged entity to offer new and wider range of products and heighten its chances of gaining new customers.
A merger will also create economies of scale, resulting in cost savings and branch expansion. This would be particularly positive for the smaller partner.
An analyst at a bank-backed brokerage said that while there were definitely advantages in merging stockbrokers, this would not happen, as most of the standalone stockbrokers in Malaysia were owned by individuals and entrepreneurs.
“Theoretically it is possible, but in reality it won't happen. The mentality is not to merge. Merging would mean that there will only be one leader. The leader of the smaller entity will have to step down. Of course, he wouldn't want to. Most entrepreneurs who start their own companies will be very adverse to that,” said the analyst.
He added that the only way for a merger to happen was if a bank bought out the stockbroker.
The banking analyst said the cost reduction would be a huge benefit should the stockbrokers merge.
“A merger enables stockbrokers to cut costs in the hiring of remisiers and dealers. Currently, stockbrokers are in fact increasing the cost of hiring a remisier as they are pinching from one another and offering higher profit-sharing packages. This isn't cost efficient at all,” he said.