The broking group Collins Stewart Tullett saw profits plummet by more than two-thirds last year and warned of the challenging year ahead after the acquisition of its smaller rival Prebon last September.
The firm, headed by Terry Smith, has been hit by weak corporate bond markets and the falling dollar, while grappling with the integration of the bond and derivatives broker Prebon with its Tullett arm. The group spent £48m reorganising the combined business the expected total integration cost is £80m and hopes to achieve annual cost savings of £42m from this year. The Prebon acquisition made Collins Stewart the second-biggest inter-dealer broker in the world, with that part of the business accounting for four-fifths of revenues, dwarfing its traditional stockbroking business.
The firm, which derives most of its income from bond and derivative broking, unveiled annual pre-tax profits of £21.7m compared with £66.9m in 2003. The results partly reflected the cost of the Prebon takeover and a £10m contribution to the compensation fund in the City's split-capital trusts scandal. Operating profits, excluding goodwill and exceptional items, climbed 19.7 per cent to £90.1m.
Underlying revenues in inter-dealer broking were down about 3 per cent. Mr Smith said: "The main problem in inter-dealer broking was in the fixed-income area. With rates going up, there is less refinancing activity. The compression of yield spreads, the search for yield ... that dampened activity in fixed income." But he added that things looked "a lot better" this year.
The firm has been embroiled in a string of lawsuits and is suing the Financial Times for libel and two rivals over alleged illegal poaching of staff. The libel battle against the FT relates to its coverage of allegations of insider dealing at the broker made by the sacked former analyst James Middleweek. He withdrew his allegations and his case for unfair dismissal after Collins Stewart filed an action for libel against him.
Collins Stewart is also suing its rival Icap and two former managers over claims they organised a poaching of 27 staff in Hong Kong and Singapore.
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