Stockbrokers lay off workers to shield profits from decline

• Newly released market data shows that brokers and investment banks effected deep cuts in employee costs with the lay-off of workers and reorganisation of their businesses, including use of independent agents. 
• Data for the first six months of the year shows that 10 out of the 21 market intermediaries cut their employee costs, eight of them by more than 15 per cent, reflecting a steep drop in employee numbers.
• The lay-offs occurred after a sharp drop in the volume of shares traded at the Nairobi Securities Exchange and a general fall in share prices in the first half of the year – resulting in a corresponding drop in brokerage commissions.
• Seven stockbrokers and investment banks reported an increase in employee expenses, chalking up a rise in employee costs by more than 10 percentage points

A sharp drop in commissions in the first half of the year sent stockbrokers into a cost-cutting spree that left a large number of the industry’s workers jobless.

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Newly released market data shows that brokers and investment banks effected deep cuts in employee costs with the lay-off of workers and reorganisation of their businesses, including use of independent agents. 

Payroll costs remain the single largest expense in the stockbrokers’ books, whose management is key to profitability in the business that has recently been facing low market volumes.

Data for the first six months of the year shows that 10 out of the 21 market intermediaries cut their employee costs, eight of them by more than 15 per cent, reflecting a steep drop in employee numbers.

The lay-offs occurred after a sharp drop in the volume of shares traded at the Nairobi Securities Exchange and a general fall in share prices in the first half of the year – resulting in a corresponding drop in brokerage commissions.

Seven stockbrokers and investment banks reported an increase in employee expenses, chalking up a rise in employee costs by more than 10 percentage points.

Combined staff costs for all the market intermediaries dropped by 6.6 per cent to Sh409.3 million at the end of June from Sh438.1 million over the same period last year.

“It has been a tough half year and valuations were down. This affects us. Turnover also came down significantly,” said Nkoregamba Mwebesa, the managing director of CfC Financial Services, whose commission earnings dropped by 40 per cent and employee costs fell by 24.4 per cent.

The market intermediary, which emerged as the fourth most profitable, made Sh64.8 million in brokerage commissions down from Sh108.3 million in a similar period last year while staff costs came down to Sh54 million from Sh71.4 million.

“We have restructured our business and changed our retail model. We are now using our agents instead of using our own infrastructure and this affected some of our staff,” said Mr Mwebesa. The company is currently using 20 agents.

CfC Financial Services’ total expenses dropped by 41.7 per cent as a result of the firm’s use of agents -- translating to a net income of Sh23.2 million in the first six months of the year.

The 11 stockbrokers and 10 investment banks made a total of Sh839 million in brokerage commissions in the first half of the year down from Sh1.01 billion in the same period last year. 

The combined advisory and consultancy income also dropped by 24.4 per cent to Sh207 million from Sh274 million last year, reflecting a drop in the number of deals and increased competition for the services in the first half of this year that culminated to a drop in pricing.

Dyer & Blair made the highest in brokerage commissions – more than doubling its share to Sh198 million from Sh94 million.