Thoughts turn to bonuses at this time of the year in the City of London. It's impossible for them not to: investment banks such as Goldman Sachs give a running total during the year of how large their compensation pot is going to be. In Christmases past, it has been overflowing.
The irony is that new regulations mean investment banks are being forced to make a greater portion of payouts in shares, not cash, in an attempt to discourage casino-style risk taking. Stockbrokers, however, are still allowed to shovel all the cash they like. Although for most of them, the chance would be a fine thing.
Many people picture a stockbroker as a man clad in red braces, clutching a cigar and hitting the phones. The image is as much out of
date as the boom times it evokes. Instead of popping Champagne corks, small firms are now trying to scratch a living. If anyone still wore them, plenty of braces would have been hung up for the last time.
Brokers estimate trading fees have slumped by 75 per cent in three years, while tighter regulations have driven up costs. Two factors are at play: share trading volumes fallen because confidence is low thanks to the economic uncertainty brought about by the eurozone debt crisis. On top of this, fund managers seeking to preserve their own returns have screwed the price they pay from 0.2 per cent of the value of a trade to 0.12 per cent. And brokers that let clients use their electronic platforms to trade on the market directly charge as little as 0.04 per cent.
It isn't much to sustain the bedrock of an integrated business that always used to make money on top of share trades by acting as a middleman between companies and their shareholders and advising on mergers, acquisitions and stock market flotations. In addition, there are fewer, larger fund managers to act for and investment banks who have invested heavily in trading platforms are aggressively trying to win volumes.
The firms that staffed up with casualties from the first wave of banking crisis cuts have been forced to rethink. Diligent research on the best shares to buy has been cut back. Several old names have exited the sector, selling their securities arms off and reinventing themselves as wealth managers.
At the same time, the London market has changed radically: so-called cash equities account for just 13 per cent of the London Stock Exchange's turnover, now it has expanded internationally and into investment tools such as exchange-traded funds or other derivatives. Despite the occasional privatisation windfall, of which October's Direct Line float brought back memories, retail stock ownership remains at just ten per cent in Britain, compared to three times that in Italy.
Never mind the technology advances. For survivors such as Liberum Capital and Numis Securities, their success comes down to good old-fashioned relationships with companies that need their advice, and investors who trust them to trade.
James Ashton is head of business at the London Evening Standard and the Independent.
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