Another broking house disappears
By Mano Sabnani, Business and Financial Consultant
First published in TODAY
4 Jan 2003

It was sad, reading about the exit of J M Sassoon from the local stockbroking scene. TODAY reported more than two weeks ago that the firm's business was about to be taken over by UOB Kay Hian, which has been on an expansion path. The staged deregulation of the broking commissions in the last three years has necessitated massive consolidation in the industry, and the process has not fully run its course.

The much lower commission rates, entry of strong foreign players and the bad markets of the last five years (with some respite in 1999) have changed the face of local broking forever. Where in the seventies and eighties, more and more brokers were emerging with new licenses awarded by the former Stock Exchange of Singapre (SES), the trend in the last three years has been for amalgamations of stockbrokerages, with bank-backed houses serving as the core magnets.

Where local brokerages numbered close to two dozen at the height of the 1993 bull market, they are now reduced to less than 10. Gone are previously well-known names like Ong and Company, OUB Securities and Vickers Ballas, absorbed by Kim Eng Ong, UOB Kay Hian and DBS Securities. The mergers and takeovers have been necessary, to build critical mass of remisiers and institutional clients and to share out overheads such as backrooms and research.

While most of the remaining brokerages are still labouring under the weight of high overheads, wafer thin margins and shrinking volumes amidst a prolonged bear market, there is light at the end of the tunnel. As UOB-Kay Hian's deputy managing director Tang Wee Loke has pointed out, the next cycle of the bull market has to come. And when it does, amalgamations like OCBC Securities, UOB-Kay Hian and DBS-Vickers, with their size and affiliations, will do well. Smaller independent entities like Kim Eng Ong, G K Goh and Philip Securities will have to carve out niches for themselves, to survive.

Unlike the old days, there is no premium attached to broking licences these days. J M Sassoon will hence be handing its licence back to the SGX. What counts is the retail and institutional clients that a house has under its wings. UOB Kay Hian is not purchasing J M Sassoon, the company, but only its assets and business. There will probably be considerable layoffs in the backroom and research departments.

The Sassoon takeover took a long time coming, but it is probably one of the last to occur for the industry's current round of rationalisation. Barring one or two late developments, the industry can now look forward to consolidation and recovery in the next stock market upcycle. Everybody is looking to the second half of 2003.