FTSE in-depth: Smaller brokers feel the squeeze

By Geoff Foster for MailOnline
Updated:

 

It's out of order and basically unfair. Many small-to-medium-sized stockbroking firms which have been the lifeblood of the City of London for donkey's years are now having their own futures put into jeopardy by the Financial Services Compensation Scheme (FSCS).

Geoff Foster

Geoff Foster: Turmoil in Egypt and risk of contagion in the Middle East made the Footsie pull up lame.

Brokers have this week been warned that the heavy cost of the levy imposed by the FSCS last year could become the norm for the next two years.

The FSCS has sent invoices totalling £300m-plus to firms to collect compensation for investors in two outfits that went belly up last year.

Keydata Investment Services collapsed owing £247m and Wills & Co had to stop trading after getting a £1.5m fine from the Financial Services Authority for missselling and then being unable to pay claims to its 19,000 clients.

Private client and investment management groups are now being told to pay around 20% of annual profits to pay for two 'rogue' firms' indiscretions, while some bigger firms are getting away virtually scot free.

Walker Crips eased 1p to 49p after revealing it had been invoiced for £220,000 by the FSCS for a second interim levy and said it was a greater-than-expected sum. The stockbroker only made pre-tax profits of £1.5m in 2010.

Walker Crips' levy follows the hefty £6m imposed on broker Brewin Dolphin (3.8p lower at 159.6p) and the £2.6m that Charles Stanley (unchanged at 307.5p) has been asked to pay and the £3.2m Rathbone Brothers has been told to cough up. All bills apparently must be paid within the month.

Such penal amounts will put a big dent in company profits and hit staff morale if bonuses are cut back as a result. Firms are now having to run fast to stand still.

As one fund manager put it: 'It is outrageous that quality City firms have to pay for the inadequacies of others. The Financial Services Authority should also hang its head in shame for not monitoring the two bust companies properly in the first place.'

Turmoil in Egypt and risk of contagion in the Middle East and North Africa made the Footsie pull up lame. It closed 16.73 points off at 5,983.34. Wall Street lost 50 points in the early stages as fund managers on the Street of Dreams kept their powder dry ahead of today's crucial US non-farm employment numbers.

Temporary power group Aggreko, which is to be the exclusive supplier of temporary energy services at the London Olympics in 2012, lit up the Footsie with a gain of 70p to 1498p. Bank of America/Merrill Lynch upgraded to buy.

Kate Calvert, retail analyst at Seymour Pierce, advised clients to sell J Sainsbury, 2p cheaper at 387p, after attending a store visit to the supermarket giant's recently extended Crayford site in Kent.

Industry growth has slowed significantly since Christmas. Rising petrol prices and customers with a fixed budget are changing their behaviour, looking for shopping promotions.

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Sainsbury's is well positioned to deliver double-digit growth over the next couple of years, but this is more than reflected in its premium valuation to the sector. Calvert's target price is 350p.

Revived Johnson & Johnson takeover talk lifted replacement hip and knee group Smith & Nephew to 722p before a close of 712p, up 5.5p.

Acal, the pan European specialist provider of technology products and services, soared 24.5p to 310.5p following confirmation that management expects full-year results to be ahead of expectations. Buyers switched on to ongoing recovery hopes in its core electronics business in Europe.

Speculative buying fuelled by takeover gossip helped North Sea oil explorer Encore Oil gush 10.25p to 149.25p. Plastics Capital, the niche plastic products UK manufacturing business, jumped 12.5p to 83p after winning its first local customer since setting up sales activities in Shanghai, China last year.

Dog of the day was Central Rand Gold, which crashed 1.46p to 1.48p after the company said that the South African has not come forward with its previous commitments to assist in funding a pump to stop the ingress of water into the mining operations. The additional cost of the pumping station would be around $22m beyond the $4m already committed by Central Rand.

San Leon Energy added 3.75p at 36p on hearing that the Albanian government has approved the Durresi Block Licence, offshore Albania, which is situated along the highly prospective Apulian Margin.

Bahamas Petroleum advanced 3.25p to 22.25p following completion of the acquisition of 1120 km of longcable 2D seismic in its southern licences.

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