M&A of securities brokerage firms part of consolidation

Mergers for the small brokerage firms is best option in the current market conditions, says market analyst. (ERIK ARAZAS)

The anticipated consolidation of securities brokerage firms in the UAE has started taking place with the announcement of Abu Dhabi-based Al Ramz Securities acquiring National Financial Brokerage Company.

The merged entity, with a capital of Dh125 million, will be called Al Ramz Securities in which Invest AD, the owner of National Financial Brokerage, will own a stake, said Iyad Abdel Nabi, CEO of Al Ramz Securities.

But he did not disclose the size of this stake.

Abdel Nabi also announced that Al Ramz Securities is in merger talks with other companies in the country but refused to give more details saying that the company will announce when there is a deal.

"The merger choice is the best option at the current market conditions. Authorities are encouraging this direction to protect the industry due to the sharp drop in the turnover in local markets," said Abdel Nabi.

On the announced merger, he said: "We merged to create a strong financial brokerage firm in the country with a total capital of around Dh125m. This will enable us to introduce state-of-the-art services for different categories of investors including institutions, high-net-worth individuals and small investors."

Abdel Nabi explained that the merger negotiations started in October last year.

The company already issued an announcement for creditors of the National Financial Brokerage to report to Al Rams Securities as well as the Securities and Commodities Authority (SCA).

National Financial Brokerage reported a net loss of Dh6.32m during the first nine months of 2009, while it reported a net loss of Dh3.37m in 2008.

Al Ramz Securities achieved net profit of Dh32.21m during the first nine months of 2009 compared with a net profit of Dh9.97m during the same period of 2008.

"In fact, losses of the National Financial Brokerage came from spending to develop the company's infrastructure and services. We consider these losses as capital investments which will benefit our clients in the future," said Abdel Nabi.

"National Financial Brokerage has institutional investors while Al Ramz Securities has different institutional and individual investors. This merger will expand our client base and reduce the operating cost so our profitability will increase," he added.

The merger came amid expectations of dramatic changes in the brokerage industry in the country with some expectations estimating that 70 per cent of brokerage firms will disappear from the markets this year through mergers or simply shutting down.

This is a result of the sharp drop in revenues while operating cost of brokerage firms is still high.

According to sources, the majority of brokerage firms lost at least 30 per cent of their capital due to the downturn in the markets. Also, margin trading and clients who defaulted due to sharp losses in the markets added more pressures on brokerage firms.

"Despite margin trading is not regulated so far, brokerage firms were offering margin trading to encourage their clients for investments. Due to the drop in prices, clients lost their capital and margin investments as well and this led to losses in brokerage firms. This worsened the situation in the industry," he said.

Al Ramz Securities was ranked second in the brokerage list in Dubai Financial Market during January this year.

It dominated 5.12 per cent of trade values and 4.46 per cent of trade volumes.

The company is also ranked 12 among brokerage firms trading in Abu Dhabi Securities Exchange during the full year 2009.

The company attracted 3.15 per cent of the total trade value in the market and 3.69 per cent of the trade volumes in the market last year.

 

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