By VICTOR JUMA (email the author)
Posted Sunday, December 18 2011 at 14:38The prevailing bear market conditions at the Nairobi Securities Exchange came to the fore as the leading broker, in terms of revenues, laid off staff to cut costs.
Kestrel Capital, the largest brokerage by market share, shed four of its staff at the beginning of this month.
The four employees were drawn from trading, operations and accounts departments, as the management said the aim was to reduce costs at a time when business was slow.
“We have laid off staff all across the board because trading volumes are low,” said Andre DeSimone, chief executive officer, Kestrel Capital. “A lot of brokers are struggling. We will not make money in the fourth quarter of this year at best we will break even.”
Kestrel reported one of the largest increases in employee costs in the six months to June 2011.
The stockbroker saw employee costs increase by 48 per cent to Sh24.4 million in the six months to June 2011 compared with Sh16.5 million in the same period last year.
Though, Kestrel’s move to cut its staff numbers was a surprise to many in the industry because it has the lowest ratio of employee cost to income.
For every Sh100 earned in the six months to June 2011, Kestrel’s management spent Sh12 on employee costs better than the industry average of about Sh30.
Kestrel has built its dominance on the local market by having a lean operating model, with a larger research team and a focus on bringing in business from foreign investors who buy in large volumes and trade in good and bad times.
But Kestrel’s clients are now staying out of the market. “We have the same clients but they are not trading as much,” said Mr Desimone, adding that its clients are looking at the effects of the prevailing high interest rates reducing company earnings.
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“I am not bullish about next year,” he said.
Trading at the bourse has remained subdued as investors shy away from buying shares because the high rate of inflation has left them with less disposable income to invest. And the high interest has attracted investors into the fixed income market.
Low activity
Although the fourth quarter has traditional witnessed low activity because of investors staying out of the market in December during the holiday season, this year has been worse compared with last year.
Equities turnover, the bread and butter for the stockbrokerage firms, in the month of October and November was Sh4.2 billion and about Sh3.3 billion respectively.