ING will shut down brokerage operations in Romania following a decision of the Dutch group to withdraw globally from all markets where it has such operations, with the exception of the Benelux area (Belgium, the Netherlands and Luxembourg) and Poland.
This is very bad news for the Bucharest Stock Exchange as ING was one of the largest brokers on the market and one of the gateways for the money of foreign investment funds to enter the local market.
ING was in the first nine months of the year the second-largest stock exchange broker on the equity market, with transactions of 1.5 billion lei (EUR340 million) and a 12% market share. The Dutch company entered the Romanian capital market in 1998 and with it came several large investors, which promptly put the Bucharest stock exchange on the map of major investment funds operating in London and in other major financial centers.
ING brokers brought US Artio (Juius Baer) to the Bucharest Stock Exchange, which in turn brought tens of millions of euros to the Bucharest Stock Exchange between 2000 and 2004 when few foreign investors had discovered Petrom, BRD or financial investment companies SIFs.
“ING entered the Romanian market when CA IB, Bank Austria, ABN and SocGen were calling the shots. At the time many brokerages were closed down or exited the market because of the ’97-’98 crisis, but similarly strong ones emerged in their place. Now the problem is that no-one is emerging,” commented on Monday one of ING’s rival brokers.
Despite the departure of a strong competitor, brokers are not at all happy with the current situation, although in theory they will be able to share ING’s market between them.
“The effect of ING’s departure is very negative. We are left with a small market, without investors, and with politicians who don’t know what the stock exchange is about. By the time the privatizations are made, there will be nothing left,” the same broker said.
Following this global decision of Dutch ING, the Bucharest Stock Exchange will become even less visible for foreign investors. Unlike other markets where ING is set to shut down operations, where big names such as Goldman Sachs, Morgan Stanley, Citi, Credit Suisse and Deutsche Bank operate, on the Bucharest Stock Exchange there are increasingly few international brokers.
In the past few years most international banks on the Romanian market have narrowed down their brokerage operations, and brought them in house.
The latest example is UniCredit, which is set to close down its brokerage (UniCredit CA IB Securities), with the service to be brought in house by the bank. As in the case of ING, the move targets several markets.
“Equity operations in Central and Eastern Europe and Russia are closing, except Poland, where we have a strong position,” Adrian Simpson, UK Head of Corporate Communications for ING Commercial Banking, told MEDIAFAX.
Both ING and UniCredit have kept their operations on the Polish stock exchange, which has been the most dynamic market in terms of offerings conducted.
The result of these moves will be that over the coming years the gap between the Polish stock exchange and the Romanian one will grow instead of narrowing down because the money of foreign funds will go where big names of international finance are present. Currently daily transactions on the Bucharest stock exchange amount to EUR5-EUR10 million, while in Warsaw they amount to EUR150-200 million.
Another consequence will be that the state will have an increasingly hard time finding brokers and buyers for its planned public offerings and obtaining a good price from the sale of shares in companies such as Transgaz, Romgaz, Hidroelectrica, Nuclearelectrica and Petrom.
Things may have been different had the state stuck to its commitments to conduct privatizations through the stock exchange and had the capital market regulator CNVM made the stock exchange more attractive for investors through clearer legislation and better investor protection.
On the other hand, the current situation is the result of brokers’ activity in the past 17 years – they have not managed to agree on one joint direction of development for the stock exchange and made things more difficult for one another rather than try to work together to help the market grow. So, unlike in Poland, where the bourse is state-run and the state significantly helped the bourse’s development, in Romania the bourse was in the hands of the brokers and nothing happened.
The consequence is that now local companies that need financing don’t have the bourse as an alternative and are dependent on banks, so they have very few options.
Brokers are unhappy with the current situation, although they are partly responsible for the current situation. The war of fees meant that fees collected from investors don’t even cover brokerages’ functioning costs. Almost all brokerages on the Romanian market have made operating losses in the past few years and survived by selling shares in the Bucharest bourse.
(English version by Daniela Stoican)