Brics Securities, which had sold out its institutional equity business for nearly Rs 290 crore to Lehman Brothers in August last year, is planning to re-enter the business. A top executive close to the development told Business Standard that Brics intends to start the institutional equity business afresh once the non-compete agreement with Lehman expires in August 2009.
“The non-compete agreement restrains Brics from conducting institutional equity business till August next year. After the agreement with Lehman gets over, Brics is looking at re-entering the business once again… Institutional equity business holds out prospects of higher income as compared to retail broking. Although the profit margin in retail is almost the same as that in institutional business, in absolute terms, income is higher in institutional equity. Brics has not yet decided when to enter the business, but such a move will depend on the market condition,” the executive said.
Brics used to deal in institutional equities with a team of about 45 employees till last year when Lehman acquired the business along with the entire team. Out of the total deal of nearly Rs 290 crore, Lehman owed Brics about Rs 190 crore for buying its employees. The payment was scheduled to be made to Brics in three tranches, out of which two have already come. About Rs 120 crore still remains to be paid to Brics. Even after Lehman filed for bankruptcy, the non-compete agreement stops Brics from conducting its own institutional equity business.
Sources said that Brics will hire a new team of 30-40 people to re-start the business next year.
“A minimum capital of Rs 1 crore is needed to run a good institutional equity team. Institutional equity business is more profitable than retail equity. An operating margin of 30-40 per cent can be estimated on an average institutional business,” said the executive.
About a fortnight ago, Japan-based Nomura Holdings acquired Lehman’s Asia Pacific equity and investment banking operations in a $225 million deal. Following the deal, the ex-employees of Brics’ institutional equity business, who were taken by Lehman, have been offered to join Nomura’s India operations.
Meanwhile, Brics Securities filed a lawsuit against Lehman Brothers in the Bombay High Court last week in an attempt to recover the pending Rs 120 crore.
“The suit was filed just as a measure to formally inform that Lehman owed Brics certain amount. As such, it will be wrong to say the payment is delayed, as the deadline for the final installment is yet to come. We hope to receive our payment in time,” said Brics sources.
