'Foreign invasion' increases competition in SA's securities brokerage industry
Foreign investment in South Africa's financial services sector is growing at a dizzying pace. Both old world and emerging market players are seeking to set up in the country, both for its own prospects and as a springboard to expand into Africa.
Last year Russia's Renaissance Capital bought Barnard Jacobs Mellet Securities and has since been aggressively growing and recruiting, while Credit Suisse ended the partnership with Standard Bank to set up its own equities business. Two foreign heavyweights have now chosen the acquisition route, subscribing to the view that buying a local company is the quickest way into a market.
BNP Paribas, France's biggest bank, has acquired 60% of Cadiz Securities for 150m rand ($22m). Cadiz Securities, a small but highly respected group that employs over 40 people, was one of South Africa's first firms to focus on the derivatives market and fits in well with the French bank.
The plan is for the two groups to combine their strengths to market and sell South African equity products to institutional investors in Africa and abroad. BNP Paribas has had a representative office in South Africa since 1991 but has only recently embarked on a significant expansion.
Religare Capital Markets, the investment banking arm of Indian billionaire Malvinder Singh's Religare Enterprises, has bought a controlling stake in SA broker Noah Financial Innovation.
"We have spent a lot of time focusing on Asia and India, now we want to start looking at Africa," says Martin Newson, former head of global equities at Dresdner Kleinwort who is Religare's Ceo for global investment banking. "We felt that the best way would be to plant a flag in SA and use this as a beachhead for developing our wider Africa ambition strategy." Religare inherits Noah's 20 SA professionals but might add more people, Newson said: "We have actually left the room open for investment bankers."
Ram Barkai, Cadiz Ceo, says it has been a difficult year in the securities business in South Africa and margins have been tight because of increased competition. The situation is only going to get worse. "The broking industry in South Africa is under severe pressure with the advent of tighter competition," says Owen Nkomo, who has just left his role as cash-equities trader at Citigroup in SA to explore other opportunities. "With such competition in the market and ever improving execution technology, there will definitely be continued pressure on commissions."
Analysts expect more small independent brokers to be snapped up by bigger firms with better balance sheets. As Barkai puts it, "South Africa has become too competitive and too big to remain small."
