 "Burmans stand by Espirito Santo")
The announcement came about a month before shares of ESSI’s Portugal-based parent, Banco Espirito Santo, tanked. This took place amid fear over irregularities in lending to group entities and margin calls triggered by crashing share prices. Over the past couple of weeks some of its sister concerns in Portugal, Switzerland and even Angola in Africa have come under indirect pressure, as clients and regulators rush to contain the contagion.
The local arm, in which the Burman family of Dabur holds a minority stake, says the crisis has not affected the Indian business and attrition rates are below industry averages. “Nobody has left us in the past two weeks (since the news of crisis in Portugal broke),” George Mathew, who now heads ESSI, told Business Standard last week. He said exits were routine and the company was looking for replacements. Mathew added the firm had advised several transactions in the equity and debt markets and was in the process of taking more mandates.
Yet, executives agree the global developments and reports of these in the local media on Budget Day has created some anxiety among staff and clients. Beattie was not the only one the Indian arm has lost in recent times. Chirag Talati, co-head of research, also moved out. The team has also lost a few analysts. Talati, who had worked closely in the past with ESSI’s first chief, Nicholas Paulson Ellis, is said to have moved “wanting a new challenge.” In his resignation letter dated March 18, Beattie said the move was to “pursue other engagements”. Beattie has since taken up an assignment with French broking major CLSA in Hong Kong.
Ellis, who was also a director of ESSI, moved to Britain in December. Burman family scion Gaurav Burman, also a director of ESS India, told Business Standard the reports of exits were “inaccurate” and the local arm was in fact doing well. In an email response, he said, “We, as a family have a great deal of respect and admiration for the Espirito Santo family, who are not only our partners but our friends. We don’t believe the global developments have an impact on our joint venture in India. Our JV for India is with Espirito Santo Investment Bank (ESIB), which is separately regulated, capitalised and managed. We remain committed to our partnership, the business in India is growing and we are delighted with its progress.”
Ellis told Business Standard his move was in tune with his original plans, “I left India in late December 2013 to take on a role as head of emerging market equities in London. My tenure in India was always planned to be three years and my moving had nothing to do with any group issues.” Adding: “It simply isn’t true that there have been a significant number of exits. The only senior person to leave in H1 (the year's first half) was Chirag Talati. He left as a friend of the firm after working for me for many, many years, both in the UK and India, and wanting a new challenge. Our attrition rate is no higher than any of our peers.”
In its annual report for 2012, Espirito Santo said its Indian arm had 28 employees. Its 2013 annual report, a shorter version, did not mention an India headcount. But, in a recent website post, it said, “Espírito Santo Securities India’s team of 37 professionals provides advisory services in mergers and acquisitions, capital markets, research and brokerage.”
Ellis added there were no plans to trim Indian operations. “We will increase headcount this year, have just hired one new power analyst and are hiring two more, as well as hires in investment banking,” he said. And, explained how the Burmans remained very supportive “of us, and our strategy”. According to him, ESSI’s revenues are ahead of the budget in India this year. According to the balance sheet for FY13, ESSI made an income from operations of Rs 5.04 crore. It reported a loss of Rs 24.8 crore for the year, show MCA filings.
Some former employees have a different take. “There are issues with the global bank, as well as the investment banking division. Things started coming up in Europe as early as November. An entire division left in Europe. People here got to know around March-April. A bunch of people left within a span of one to one and a half months,” said a mid-level executive who left the firm recently. “Things are not looking good.”
Ellis clarified, “The entities in the news are all solely and privately controlled by the Espírito Santo family. They do not relate to the investment bank and they are distinct from the bank itself. The problems relate to our shareholder. There is no denying these are difficult times for the Espirito Santo group but it is unacceptable for former employees to exploit the situation for their own competitive ends, providing misleading information to Business Standard.”
In November 2011, the Burman family, the majority shareholders of Dabur, a consumer goods company with a market capitalisation of $4 billion, through its investment arm, MG Burmans Capital Advisors, took a 25 per cent stake in ESSI. Mohit Burman and Gaurav Burman were inducted into the board. It was then seen as a brave and counter-intuitive move, coming on the heels of several global banks hit by the global financial crisis exiting India or being bought over amidst a drought in equity deals, due to investor apathy over scandals and policy paralysis.
The Burmans were new to the investment banking space, though they had earlier ventured into insurance and mutual funds, with Aviva and Fidelity as majority partners, respectively. Incidentally, Fidelity, which had bought out the Burmans in 2007, exited their Indian market in March 2012.
Ellis, who led the venture as country head, tried to position Espirito as a firm that offered strong fundamental research and high-quality low market impact execution, a space which it saw was not adequately catered to by others. Espirito’s entry into India had been facilitated by its global acquisition of a British firm, Execution Noble. The latter, a London-based research outfit, had built up an India practice and created ripples through critical and hard-hitting reports on governance issues, and questionable market practices such as “pumping and dumping” stocks.
By virtue of the global acquisition, this unit fell into the hands of Espirito Santo. Under Ellis, the team continued to produce its critical research reports on companies, even as it awaited its investment banking licence. It offered equity research coverage of 10 sectors and about 100 companies. In 2013, it received a merchant banking licence from the Securities and Exchange Board of India.
In a recent post on its website, Espirito Santo claimed the Indian arm had achieved a market leader's position within months of launch. It cited its role in “the bookbuilding and allocation of the Institutional Placement Programme (IPP) of equity shares of Muthoot Finance Ltd”, and the qualified institutional placement of SKS Micro Finance.
While regulators globally are watching the group closely, the Indian arm might be on a relatively stronger wicket because it did not have any lending operations; nor does it hold client money like a fund. An executive from a securities firm based in Mumbai said, “It is not a fund. It is a broking house – largely a service business. Their margins would be with the exchanges. Hence, risks to the larger system are limited.”