How much are 81 interdealer brokers worth?
Well, Tullett Prebon has provided something of an answer in a trading statement released on Friday:
In August 81 brokers on certain desks in our North American business resigned or gave notice of their intention to resign, following a raid on the business by BGC, and 51 of these brokers have now left the business. The revenue generated by those brokers who have or are expected to leave the business is around 7.5% of group revenue. Actions are being taken to strengthen the management and organisation of our North American business including, where appropriate, replacing poached staff. Legal action is being taken against BGC in the US and also in the UK and Hong Kong, following raids earlier in the year on our London and Hong Kong businesses.
Now group revenue at Tullett is expected to total £945m this year, according to Reuters. 7.5 per cent of that total is £70.8m, which means the 81 pull each pull in £875,000. Which is pretty impressive, no?
Of course, we don’t know how much of that revenue falls to the bottom line, but at Goldman Sachs (admittedly not a great comparison given its size etc.) profit per employee has averaged £181,000 over the past eight years.
Whatever the answer, analysts are lowering forecasts for Tullett because replacing the lost staff is likely to result in a higher wage bill.
Here’s James Hamilton of Numis Securities, who also sees the BGC raid triggering wage inflation in the industry as a whole.
We expect Tullett will look to replace a number of these staff that they have lost. As a consequence industry compensation as a proportion of revenues is likely to increase. The staff loss is expected to negatively impact forecasts through lower revenues higher staff compensation costs or both. We expect the scale of the staff poach to impact industry profitability as well.
And that has hit the Tullett stock price this morning: its shares are currently down 46.2p to 353p, a fall of nearly 12 per cent.
Still, that fall needs to be put into perspective. Tullett has had a hell of run this year.
Anyway, for further details on the highly entertaining legal battle between Tullett and BGC, including missing mobile phones, mysterious text messages and recruiting sergeants, see below.
Related link:
Tullett accuses rival BGC of ‘illegal poaching’ – FT