Corporate broking isn't broken
Source: www.breakingviews.com is Europe's leading financial commentary service.
In the past two months, two of the UK's biggest corporate brokers have suffered serious reverses. And this has led some to question whether the UK's distinctive corporate broking system may finally be in decline.
HSBC recently dropped Cazenove as its broker in what the international bank claimed was a move to broaden its international shareholder base. And troubled insurer Royal & SunAlliance dumped Hoare Govett, from the team handling its rescue rights issue.
Corporate broking is a peculiarly British phenomenon. Companies usually employ one or more investment banks as corporate brokers to communicate with their institutional investors.
They do so partly for regulatory reasons. The Financial Services Authority obliges listed companies to have a "sponsor" broker to ensure they comply with listing rules. But brokers are also seen as a valuable source of independent advice, as well as a sounding board for deals and governance issues.
US banks have made huge inroads into most areas of the City but not into corporate broking. Of the top three firms in 2002, only one is an American interloper - Merrill Lynch. And its position was largely inherited from Smith New Court, the broker it bought in 1995.