Mark Kleinman: Diamond merger shows mid-cap brokers need polish
Mark Kleinman is Sky News’ City Editor and is the man that gets the City talking in his weekly Morning Wire column. This week he tackles Panmure and Liberum’s tie-up, Lloyds’ next move and why Shein could be set for London
Diamond merger shows mid-cap brokers need polish
You can’t accuse the architects of mid-cap broking mergers of splurging money on fancy branding consultants. Last year, finnCap Cavendish and Cenkos combined to form Cavendish, while Numis simply added Deutsche to the start of its name to reflect its new German ownership.
This week, Panmure Gordon and Liberum confirmed that they intend to merge to create Panmure Liberum, a name which trips off the tongue far more easily than some of the terrible, confected corporate names of yesteryear (remember Monday and Consignia?).
As these deals go, the firms look like a complementary fit. Together, they will establish the largest adviser to London-listed companies, with about 250 quoted clients, and there seems little risk of automatic defections from competing firms which use the two brokers.
The merger is not, however, a panacea to the problems – both structural and cyclical – that banks like Panmure and Liberum are facing
Some job losses are inevitable – the two brokers privately acknowledge that this is a tie-up born of necessity, the product of a faltering market which has seen the London IPO market at its weakest since the financial crisis of 2008. Of the roughly 280 employees of the combined group, market sources say a substantial proportion – perhaps between a quarter and a third – might be at risk.
Panmure Liberum’s combined leadership team looks impressively heavyweight and should be able to gain market share once integration challenges are addressed. Bob Diamond, the former Barclays CEO, faced questions about the endurance of the commitment he would make to Panmure when he bought it in 2017– this deal should answer those who have speculated for years that he was seeking an exit.
The merger is not, however, a panacea to the problems – both structural and cyclical – that banks like Panmure and Liberum are facing. The de-equitisation of the market through takeovers and delistings and the dearth of new issues amid a tepid IPO pipeline have proved to be a toxic cocktail for mid-market specialists.
Panmure Liberum’s scale and client reach will buy some insurance against the impact of those trends, but this will not be the last of Diamond’s consolidation acts if he wants to create genuine value in a troubled sector.
Nunn happier than investors as Lloyds payout looms
Charlie Nunn, the Lloyds Banking Group chief executive, is getting his spring cleaning done early.
Ahead of the full-year results of Britain’s biggest high street lender, to be announced next month, Nunn is busily reshaping the company, exiting areas where it is sub-scale or which don’t fit its core strategic objectives.
The former HSBC executive has already initiated a process to sell its £6bn bulk annuities portfolio, with the likes of Royal London and Rothesay showing interest.
I also understand, however, that Lloyds is exploring the sale of a separate portfolio of Scottish Widows assets in the form of a Luxembourg-based portfolio of approximately 50,000 German, Austrian and Italian legacy clients.
The prospective disposal encompasses investment policies under the Clerical Medical brand, one insider said, and accounts for about €2bn in assets under administration.
Its value – probably in the region of £150m – means it represents no more than a piece of tidying-up for Nunn. Lloyds will retain the portfolio if it cannot get sufficient value for it, the insider said.
Regardless, after the repayment of its £1.16bn loan to the Barclay family, Lloyds will have a big enough sweetener for shareholders come the end of next month.
Election risk may help London Trump US on Shein
Have the odds on the London Stock Exchange securing the most prominent multinational listing of the year just shortened? That would seem a contrarian way to interpret news that Shein Group, the Chinese-founded online fashion business, has just filed paperwork with regulators in Beijing for a potential initial public offering in the US.
Nevertheless, given Donald Trump’s electoral prospects and Shein’s determination to communicate the distance of its Chinese heritage, it’s not illogical to suppose that floating in New York in the year of a presidential election will be problematic.
Shein’s business model, offering influencer-promoted products at bargain basement prices, has been hugely effective, although whether its rapid growth justified the $100bn valuation it achieved in 2022 is debatable.
In line with many tech companies, that valuation has since sunk – to about $66bn, according to reports last year. And given the disparity between the ratings of tech-focused companies listed in the UK and US, a London float would probably come at a discount to the equivalent New York price.
For Shein, that might be an acceptable trade – there is certain to be less opposition from the UK to a float here than in the US; while the recent acquisition of Missguided, the youth fashion brand, and hints of a deeper partnership with Mike Ashley’s Frasers Group offer a commercial locus for a public listing in London.
Shein’s growth prospects and sheer scale make it a hefty prize for the London market if it chooses to list here. The Financial Conduct Authority’s proposed listing reforms mean that it shouldn’t find corporate governance requirements unduly onerous.
Nevertheless, recent calamities in the online fashion industry – Farfetch’s rescue by Coupang of South Korea and Matchesfashion’s cut-price takeover by Mike Ashley’s Frasers Group – suggest caution, rather than over-exuberance, will be necessary when pricing its shares.
London remains the underdog to New York’s favourite, but political winds could yet blow Shein over to this side of the Atlantic.