“This isn’t just a blip, this is much worse,” said Tim Linacre, who is stepping down as chief executive officer of Panmure (PMR) Gordon & Co., a 135-year-old brokerage. “It’s a desert for activity, which is why you are seeing some firms throw in the towel.”
In the past month, Altium Capital closed its securities unit. Evolution Group Plc (EVG), Merchant Securities Group Plc, Arbuthnot Securities Ltd. and Collins Stewart Hawkpoint Plc have all accepted takeover offers from larger competitors.
“It feels worse than any other time,” said Lorna Tilbian, an executive director at Numis Corp. who began her career in 1984. “All I hear about is people putting up a white flag.”
The firms are being squeezed as Europe’s sovereign debt crisis reduces the number of shares traded as well as fees from initial public offerings and share sales. Commissions paid to brokerages in Europe may be down 17 percent this year on 2008, according to estimates by Westborough, Massachusetts-based research firm Tabb Group LLC. Global firms are gaining market share from their smaller London rivals because they are better able to bear the rising costs of electronic trading.
“The lion’s share of the business really belongs to the global bulge-bracket firms,” John Colon, a managing director at research firm Greenwich Associates, said by telephone from Stamford, Connecticut. “They can afford investment in infrastructure, technology and compete in electronic trading.”
The U.K.’s FTSE 100 Index (UKX) has fallen 12 percent from its February high as European policy makers struggled to prevent the crisis from spreading beyond Greece. The value of stocks traded on the benchmark in the first three quarters of 2011 is down 63 percent from its peak, the same period in 2007.
“Customer volume levels are low, and boutiques will struggle,” said Stephen Dainton, head of Credit Suisse Group AG’s European equities unit in London. “A boutique that provides a very narrow research service and ability to transact in cash equities should find it very difficult to compete. We have got scale, geographical diversity and product diversity and that is key in this environment.”
At the same time, companies are pulling IPOs and takeovers, which can account for more than half a broker’s revenue, according to analysts. Companies in western Europe have either canceled or postponed offerings valued at $22 billion this year, according to data compiled by Bloomberg. Of the 25 that were withdrawn in 2011, 10 were slated to be in the U.K.