Smaller stockbrokers fight for scraps

WHEN reports claimed ZB Stockbrokers had been placed under provisional liquidation, the market feared others would follow suit.
All indications pointed to trouble.

ZB Stockbrokers is owned by a larger banking group — ZB Holdings — that can easily bail it out of problems through a capital injection.
This meant stockbroking firms belonging to smaller financial institutions and private investors would fold inevitably. But when ZB Holdings explained that the stockbroking firm placed under provisional liquidation was in fact different from Zits B Securities, the market was relieved.

 “ZB Stockbrokers changed its name from Intermarket Stockbrokers sometime in 2007 and had not traded since then due to irreconcilable differences between shareholders,” said Shadowsight Chiganze, ZB Holdings executive head for group business development in a statement.

The market heaved a sigh of relief on hearing that ZB’s stock broking arm, formed two years ago to “carry the stock broking business” for the group was still sound.

While ZB Holdings explained the situation, it is clear that all is not well with smaller stockbroking firms.
Industry players who spoke to businessdigest said while stockbroking firms housed under financial institutions could be sound, the same could not be said of independent securities companies.

Stockbroking firms owned by financial institutions such as  Old Mutual, Imara, Kingdom and ZABG together with independent brokers such as New Africa Stockbrokers account for close to 90% of the market share leaving the smaller players fighting for the remainder.

Stockbrokers, being regulated professional brokers buying and selling shares and other securities on behalf of investors, usually get their dues from customer service fees, for example by giving advice on where to put money.

These stockbroking firms also make money from the commissions they charge for each trade (buying or selling of shares).
Stockbrokers also charge management fees if they manage funds with the rate varying from country to country and depending on the firm that handles the funds.

Datvest, one of the leading asset management firms, in its June newsletter gave a concise analysis on the performance of the stock market in the first half of the year saying companies “required a well thought out and balanced strategy”.

“Clearly the stock market’s performance will be hampered by the first half events, this does not however justify selling off quality shares at give away prices,” said Jack Smith, Datvest managing director. “After all the stock market investment philosophy has always been to focus on the medium to long term and in this particular instance patience really is a virtue! As long as your investment portfolio is populated with the right quality of shares we believe the returns will eventually show themselves.”

Smith said they recognised that the investment environment had changed significantly in the last year-and-a-half and “as such overall portfolio structure will need to change to reflect this”.

This is where the smaller players will sink as they do not have the luxury to change their portfolio structures since it takes time.
Changing portfolios for firms owned by large financial institutions would be smooth as it would be underwritten by the holding company.

Apart from the jagged path that the stockbroking firms would travel in their bid to restructure their portfolios, they also have to face a dwindling business, where the Zimbabwe Stock Exchange lost about US$900 million, shedding about 16,4%, in the six months to end of June this year.

This is a reality that the stockbrokers have to live with and the reasons for the massive fall at the local bourse, liquidity crunch and the announcement of the indigenisation regulations, remain and could do further harm.

Leonard Makombe