Tullett Parings Jobs, Buying Oil Broker
Firm to buy oil broker PVM Oil Associates for up to $160 mln. Four-month revenue down 12 pct to 248 mln stg. Will cut jobs in drive to save another 20 mln stg a year.
British interdealer broker Tullett Prebon is cutting more jobs and buying oil broker PVM in its latest attempt to offset a drop in trading since the financial crisis.
Interdealer brokers, whose staff match buyers and sellers of currencies, bonds and other tradable instruments, have been hit hard in recent years, as new regulations led their traditional investment bank clients to cut back on risky trading activities.
They have also faced sweeping reforms to their own industry, as regulators push more derivatives trading onto electronic platforms in a bid to make the market more open and safer.
Tullett said on Friday revenues had dropped 12 percent in the four months through April and it would cut an undisclosed number of jobs as part of a drive to save 20 million pounds ($34 million) a year - the latest in a series of cost-cutting plans.
It also said it agreed to buy London-based oil broker PVM Oil Associates for up to $160 million to strengthen its presence in the market for crude oil, the most actively traded commodity.
PVM, along with ICAP, Marex Spectron and Tullett, is one of the four major players in broking over-the-counter (OTC) oil products in London.
Analysts said it made sense for Tullett to diversify, but remained concerned about the lack of improvement in its core business with financial clients.
"Given the lack of visibility, people want to see it trade very cheap before they get interested again," Espirito Santo analyst Phil Dobbin said of Tullett's shares.
At 1030 GMT, the shares were down 7.4 percent at 292.4 pence, the biggest fall by a UK mid-cap stock and partly reflecting the fact that the company will pay for much of the acquisition of PVM by issuing new stock.
Dobbin said a sensible solution for the industry would be for two of the three interdealer brokers below market leader ICAP - Tullett, GFI and Tradition - to merge.
"But it's incredibly difficult to do because there has to be an agreement on price and there can't be a premium," he said.
In 2009, trading in fixed-income products, which include interest rates, credit, commodities and foreign exchange, accounted for $141.6 billion in annual revenue across the top 10 investment banks, according to industry analytics firm Coalition. By 2013, that figure had fallen to $73.9 billion.
OIL BROKING
Tullett said it made 248 million pounds ($420 million) of revenue in the four months through April, a 12 percent drop stripping out the effect of currency fluctuations.
Jobs at risk include broking roles in Europe, while cost reductions could come in its technology services, which have largely completed work to comply with new regulations, a source familiar with the plans said.
Tullett said it would pay for PVM by issuing $112 million worth of new ordinary shares, with the remainder coming in cash or shares if certain revenue targets are achieved within three years. PVM has no debt, Tullett said.
The purchase of PVM, which on average has a daily turnover in excess of 100 million barrels of OTC oil derivatives and made revenue of $107.5 million in the year ended July 2013, marks a significant concentration in the oil broking market and is subject to regulatory approval.
PVM, which employs around 200 people and has branches in Singapore, New Jersey and Houston in the United States, will retain its own brand, Tullett said.
PVM CEO David Hufton said the deal had the unanimous support of PVM's shareholders, all of whom are employees of the company.
"The Board and shareholders of PVM consider that in the light of the rising technology, regulatory and capital burdens facing the industry it is the appropriate time to come under the umbrella of a larger organisation," PVM said in a statement.
By Clare Hutchison
