09/01/2007 - 22:00

Breakaway brokers cash in

09/01/2007 - 22:00

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About 20 stockbrokers turned their backs on their big-name employers last year to establish new firms in a bid to capitalise on WA’s booming resources sector.

Breakaway brokers cash in

About 20 stockbrokers turned their backs on their big-name employers last year to establish new firms in a bid to capitalise on WA’s booming resources sector.

And they are all hungry to expand with all three new stockbroking firms on the hunt to find more staff to drive even more corporate finance deals and bring in more private clients looking to park cash in the stockmarket.

Asandas, the retail broking arm owned by listed discount broker E-Trade, has begun an advertising campaign to recruit another five experienced dealers.

Asandas was formed a year ago when six brokers from Citigroup and three brokers from ABN AMRO Morgans left their big-tier broking houses to go it alone. Asandas currently employs 12 advisers.

Meanwhile, Indian Ocean Capital, which bedded down its first capital raising last month, wants a further five advisers after recently poaching five senior stockbrokers from Perth’s Tolhurst Noall office. Indian Ocean currently employs 11 staff.

Last year’s other newcomer, Stripe Capital, wants to add another eight advisers, which will see its staff numbers swell to 20.

The wealth management and broking firm was involved in several corporate deals last year including a $6 million placement for Aurora Oil & Gas. The firm is currently underwriting the oil company’s $4 million share purchase plan.

Stripe Capital director Tim Weir said while the firm was eager to grow it would wait until it found the right staff.

Asandas is using greater autonomy and independence as a selling tool.  Like Stripe, it hopes to attract staff with the lure of relaxed trading in the lucrative small to mid-cap resources sector.

“The way bigger firms operate is not necessarily conducive to many advisers,” Asandas investment adviser Rod McMahon said.

Sentinel Financial Group chief executive Norman Robinson said relaxing entry for stockbrokers a few years ago had made it easier for brokers to quit big firms and go it alone.

“It not only reflects the strength in the market but the change in the licensing regime,” he said.

He said some of the new dealers were choosing the cheaper and quicker option of gaining a financial services licence and outsourcing their Australian Stock Exchange transaction-related services to companies like E-Trade.

“You have to be a member of the ASX to be able execute orders, but what some people are doing now is becoming a securities dealer and providing the advice and getting someone else to execute the order. It dramatically reduces the set-up costs,” Mr Robinson said.

“In a way the market is segregating between people giving advice and the people that execute the (buy and sell) orders,” he said.

Mr Weir was one of six senior Macquarie Financial Services dealers who left the big tier firm to chase the surging mid-cap resources market.

“The deal flow that we are looking to do, which are companies with a market capitalisation of between $50 million to $100 million, did not fit the Macquarie model,” Mr Weir said.

“Obviously WA is resources orientated and we were looking for some independence,” he said. “But we are realistic and we know that this resources boom won’t last forever so that is why we have a core business which is funds under management.”

Veterans of the corporate finance and stockbroking market believe growth in the sector is simply an anomaly of the boom market and expect the current period of “deconsolidation” to be followed by rationalisation when the white-hot resources sector cools.

Patersons Securities executive chairman Michael Manford said the industry consolidated about five years ago and it was now fracturing.

“In a way the industry is not necessarily growing...There are not a lot of new people coming in; it is more a case of people moving around.”

But there has been growth in the corporate finance sector, with big-tier accounting firms joining the likes of boutique investment banks to lift numbers.

Azure Capital has just recruited another six people extending its corporate finance team to 26, which pushes the firm to the number one spot on corporate finance list in WA Business News’ Book of Lists.

According to the data from WA Business News’ Book of Lists, Deloitte WA’s corporate finance practice has grown from nine staff last year to 15, while staff numbers at Ernst & Young’s Perth transaction advisory services practice up 21 per cent to 23. West Perth-based Grange Consulting almost doubled staff numbers to 15.

Merrill Lynch has even cottoned on to the extreme wealth being generated out of WA resources sector, installing former Macquarie Bank investment banking group director Neville Gardiner to establish a presence on the Terrace in August.

Mr Gardiner is overseeing the global investment bank’s natural resources banking business and its investment banking activity in WA.

He was involved in the $530 million high-yield bond finance for Ric Stowe’s Griffin Coal Mining Company late last year.

Meanwhile, Azure was kept busy on several mergers and acquisitions, which included its role as adviser to Home Building Society Ltd on its merger with StateWest Credit Society Ltd. Azure advised Paladin Resources on its $165 million takeover of Valhalla Uranium.

Azure Capital managing director Mark Barnaba said WA’s powerhouse economy was providing the perfect backdrop for growth in the corporate finance sector.

“I liken it to a garden where you have rain first thing in the morning and then its 35 degrees in the afternoon. It’s just perfect conditions right now,” he said.

But he said Perth will slow down and the sector would consolidate.

“Perth will slow down at some point and when that happens the quality advisers will continue to do well but the fly-by-nights will die away and there will be fewer advisers,” he said.

“I can’t see it slowing for the next 18 months to two years.”

Mr Manford said the new finance players would enjoy the boom times but could struggle when demand for resources began to dry up.

“It is much easier to raise capital in the part of the cycle that we are in now and the new firms will have a reasonable run,” he said.

“But they will find it extremely difficult when it slows down because over the long term you need strong institutional and retail support and you need good research on companies.”

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