WESTERN Australia’s biggest local stockbroker, Patersons Securities, is the latest to reveal it has felt the chill winds from the tough equity markets, recording a loss of more than $5.1 million after revenue slumped 28 per cent to $106.4 million.
The result, for the year ending June 30, compares with a net profit in the previous corresponding year of nearly $6 million on revenue of $148.5 million.
Highlighting a difficult year, Patersons chairman Michael Manford said the broker’s board had initiated a cost reduction program as early as November 2011, recording cost savings of $6 million, at a cost of $1 million to achieve that across areas such as labour, leases, and communication contracts.
Patersons is by no means alone in experiencing a tough market. Euroz, for instance, last month reported a 56 per cent drop in net profit to $11.8 million for the year, citing market conditions for the result (even though revenue for the 2011-12 financial year was up 25 per cent to $97.6 million). In the previous year, Euroz earned a bumper net profit of nearly $26.6 million.
Research for the WA Business News Book of Lists shows Patersons has shed 22 WA advisers since the end of 2011, and reduced overall staff numbers in the state by more than 30 (to 225). Nationally, it reduced staff numbers from 540 to 460.
Other WA brokerages have not tightened their belts quite as much, at least in terms of staff and adviser numbers, which have remained relatively static across most local players.
Mr Manford said these expenditure savings would place the group in a favourable position to trade profitably by aligning expenditure with current revenue levels.
“It is very much like 1991,” Mr Manford said. “That was the second downturn after 1987; people lost confidence in what the future might hold.”
Mr Manford said that, despite the difficult conditions, private clients services continued to grow and its funds under management and administration via its Accolade brand were maintained at $1.5 billion.
A particularly bright part of the stockbroker’s year was the growth of its funds management business, Patersons Asset Management, which, in its fourth year, jumped to $210 million from $28 million just 12 months earlier. At that size, the fund management business is close to break-even.
Mr Manford said institutional investors and rating agencies needed to see a track record at least three years for the fund before they had confidence in the manager’s ability to perform.
More than 90 per cent of the funds are held in resources investments.
According to research by WA Business News, Patersons was one of the more active players in equity capital markets for the past nine months. It was lead manager of three IPOs, the second biggest by volume for the year to date in very thin market. The firm has also been one of the more active players in overall equity capital markets in the past three months, albeit with relatively few transactions compared to earlier periods.
Looking at the balance sheet, Patersons has $34.3 million in net assets and no debt.
