Brokers wrestle with competition, consolidation, regulation
They are waiting for the dogrywka - extra-time trading session - to begin, when traders buy and sell shares on prices previously fixed by the Stock Exchange.
As the "play-off" starts up, traders pass pieces of paper to brokers standing on the sidelines. A BOS broker relays the results by phone from the stock exchange and two women type the results into a computer, whose screen is displayed on the wall for all "dogrywka" participants to see.
The "dogrywka" session has become so popular that the brokerage house has to issue special passes, says Wojciech Sadowski, BOS brokerage house president. The passes are awarded if the brokerage houses' clients monthly turnover goes over a certain limit. Sadowski would not disclose the threshold figure.
Those not lucky enough to get the magic pass stand in the main lobby of the brokerage house watching the session on a computer screen, drinking coffee and talking.
Customer service is one of the keys to running the brokerage house, Sadowski says. It's also a business strategy in a market where 54 brokerage houses are vying for customers.
And it's no easy business.
A report by the Central Statistical Office (GUS) shows that brokerage houses' sales for the first six months of this year were zl. 244 million ($100 million), down 24% from the same period last year. Costs were up 24%, at zl. 212 million ($87 million). Profit margins for the first six months of this year came to 13% compared with 46% for the same period last year. According to the GUS report, 24 brokerage houses have shown losses in the first half of this year.
The GUS results confirm what a lot of analysts already feared.
"We've known that a lot of brokerage houses are struggling, now it's in black and white, " says David Young, director of Wood & Co. in Warsaw.
Young says that he expects a shake-out in the brokerage house market with some smaller houses going "out the back door." For the ones who manage to survive financially, mergers and joint ventures could be in line, he says.
Consolidation of the brokerage house market is widely expected in some quarters.
"I think it has to (consolidate)," says Wolfgang Bauer, managing director of Creditanstalt Securities in Warsaw. With a rather sluggish situation on the stock exchange continuing for over a year, small, undercapitalized brokerage houses are having problems with profitability, he says. Smaller, well-established regional brokerage firms will probably be taken over by large institutions, Bauer says, particularly by institutions looking to expand their retail network.
"For some consolidation has already started, particularly those small brokerage houses not associated with banks," says Wojciech Gryko, deputy managing director of Bank Pekao brokerage house.
Some smaller brokerage houses with good technical services and efficient research are attractive to larger firms. They are "quite a nice target for those looking for more efficient distribution," Gryko says.
Further consolidation in the brokerage house business will likely occur as the banking sector itself consolidates. The government is planning banking-sector restructuring next year by grouping domestic banks, large and small, under two umbrella financial institutions.
"Consolidation is the future," says Zdzislaw Rogowski, broker at PBK brokerage house. "(It's) connected with the privatization of the banking sector, when banks are connected, brokerage houses are connected, too."
And brokerage houses connected with banks will maintain a buffer from the hard facts of a competitive market. Banks can give financial security to their brokerage firms to see them through hard times.
"When you're private, you don't have a big brother to help you," Rogowski says.
But not everyone says big is beautiful. Many say the market has to stay diverse enough to remain innovative and competitive.
It has to "leave space for the small guys," says Jacek Krawczyk, managing director of IB Austria Securities, which was awarded a brokerage house license at the end of September. The highly competitive marketplace makes small, domestic brokerage houses look for ways to innovate and be different from the competition.
"They are fighting the hardest for clients, they have to be very dynamic," Krawczyk says. And some are succeeding, he adds.
But finding creative solutions isn't always easy in Poland, some brokerage firms argue. Legal structures inhibit brokerage houses from developing their range of products and services, says Waldemar Markiewicz, director of ProCapital.
It takes time to find the way through the regulatory maze for a variety of relatively traditional licenses, like financial advising and exchange trading of shares.
Brokerage firms should be allowed to do other services, such as conduct corporate financial services. They should also not be restricted to trading only on the public market. Why should they be, Markiewicz asks. "In the Bible it doesn't say this."
As the "play-off" starts up, traders pass pieces of paper to brokers standing on the sidelines. A BOS broker relays the results by phone from the stock exchange and two women type the results into a computer, whose screen is displayed on the wall for all "dogrywka" participants to see.
The "dogrywka" session has become so popular that the brokerage house has to issue special passes, says Wojciech Sadowski, BOS brokerage house president. The passes are awarded if the brokerage houses' clients monthly turnover goes over a certain limit. Sadowski would not disclose the threshold figure.
Those not lucky enough to get the magic pass stand in the main lobby of the brokerage house watching the session on a computer screen, drinking coffee and talking.
Customer service is one of the keys to running the brokerage house, Sadowski says. It's also a business strategy in a market where 54 brokerage houses are vying for customers.
And it's no easy business.
A report by the Central Statistical Office (GUS) shows that brokerage houses' sales for the first six months of this year were zl. 244 million ($100 million), down 24% from the same period last year. Costs were up 24%, at zl. 212 million ($87 million). Profit margins for the first six months of this year came to 13% compared with 46% for the same period last year. According to the GUS report, 24 brokerage houses have shown losses in the first half of this year.
The GUS results confirm what a lot of analysts already feared.
"We've known that a lot of brokerage houses are struggling, now it's in black and white, " says David Young, director of Wood & Co. in Warsaw.
Young says that he expects a shake-out in the brokerage house market with some smaller houses going "out the back door." For the ones who manage to survive financially, mergers and joint ventures could be in line, he says.
Consolidation of the brokerage house market is widely expected in some quarters.
"I think it has to (consolidate)," says Wolfgang Bauer, managing director of Creditanstalt Securities in Warsaw. With a rather sluggish situation on the stock exchange continuing for over a year, small, undercapitalized brokerage houses are having problems with profitability, he says. Smaller, well-established regional brokerage firms will probably be taken over by large institutions, Bauer says, particularly by institutions looking to expand their retail network.
"For some consolidation has already started, particularly those small brokerage houses not associated with banks," says Wojciech Gryko, deputy managing director of Bank Pekao brokerage house.
Some smaller brokerage houses with good technical services and efficient research are attractive to larger firms. They are "quite a nice target for those looking for more efficient distribution," Gryko says.
Further consolidation in the brokerage house business will likely occur as the banking sector itself consolidates. The government is planning banking-sector restructuring next year by grouping domestic banks, large and small, under two umbrella financial institutions.
"Consolidation is the future," says Zdzislaw Rogowski, broker at PBK brokerage house. "(It's) connected with the privatization of the banking sector, when banks are connected, brokerage houses are connected, too."
And brokerage houses connected with banks will maintain a buffer from the hard facts of a competitive market. Banks can give financial security to their brokerage firms to see them through hard times.
"When you're private, you don't have a big brother to help you," Rogowski says.
But not everyone says big is beautiful. Many say the market has to stay diverse enough to remain innovative and competitive.
It has to "leave space for the small guys," says Jacek Krawczyk, managing director of IB Austria Securities, which was awarded a brokerage house license at the end of September. The highly competitive marketplace makes small, domestic brokerage houses look for ways to innovate and be different from the competition.
"They are fighting the hardest for clients, they have to be very dynamic," Krawczyk says. And some are succeeding, he adds.
But finding creative solutions isn't always easy in Poland, some brokerage firms argue. Legal structures inhibit brokerage houses from developing their range of products and services, says Waldemar Markiewicz, director of ProCapital.
It takes time to find the way through the regulatory maze for a variety of relatively traditional licenses, like financial advising and exchange trading of shares.
Brokerage firms should be allowed to do other services, such as conduct corporate financial services. They should also not be restricted to trading only on the public market. Why should they be, Markiewicz asks. "In the Bible it doesn't say this."
