(Bloomberg) -- Bob Diamond, a financial heavy hitter when he ran Barclays Plc, is coming back to the City of London. His latest venture plays in the minor leagues.
Diamond's investment firm is set to take control of Panmure Gordon & Co., a stockbroker that focuses on the AIM market, where the brokers do much of the regulating and many of Britain's riskiest listed companies trade.
The former banking titan, forced out of Barclays five years ago in the wake of the Libor scandal, has seen his bid to build a pan-African bank falter. Now Atlas Merchant Capital LLC, which Diamond founded, plans to turn Panmure Gordon into a bigger, boutique investment bank, which may prove challenging as stockbrokers struggle and Brexit looms.
“What Panmure Gordon needs is stable ownership and some magic dust, some oomph,'' said Tim Linacre, who left as the firm's chief executive officer in 2012.
Jain, Corzine
It's unusual for a former top executive to reemerge at a smaller firm, but not unprecedented. Anshu Jain, who stepped down as co-CEO of Deutsche Bank AG in 2015, became president this year of New York-based Cantor Fitzgerald LP, a brokerage with a tenth as many employees as Germany's largest bank. Jon Corzine, a former co-CEO of Goldman Sachs Group Inc. and governor of New Jersey, ran MF Global Holdings Ltd. for 1 1/2 years until it collapsed in 2011.
Diamond, 65, declined to comment on his strategy for Panmure Gordon, but according to the offering statement the plan is to hire senior merger advisory bankers, strengthen the equities division and expand product offerings. Diamond has experience building a securities business: during his tenure at Barclays he turned an also-ran investment bank into a debt-trading powerhouse. The former Barclays chief won't be taking a management role at Panmure Gordon, according to CEO Patric Johnson, who plans to stay on.
Based in the shadow of St. Paul's Cathedral, Panmure Gordon employed three generations of ex-Prime Minister David Cameron's forbears and traces its roots to the glory days of the British Empire. Yet its shares have fallen 90 percent in the past decade. The offer by Diamond's Atlas Merchant and Qatari investment bank QInvest LLC, announced March 17, values the firm at 15.5 million pounds ($19.3 million).
The clientele has also changed from the days when the brokerage provided financing for the Chinese imperial government. Today, it specializes in trading and share sales on AIM, the more lightly regulated, junior bourse run by London Stock Exchange Group Plc. The number of AIM-listed companies has dwindled to the lowest in 14 years, and the market's returns have lagged.
Xavier Rolet, CEO of the London Stock Exchange, told U.K. lawmakers last November that AIM serves as a vital source of funds for “very small, high growth” firms.
Companies raised 4.8 billion pounds through share sales on AIM in 2016, including about 126 million pounds in offerings managed by Panmure Gordon, data compiled by Bloomberg show. Similar junior markets operate from Frankfurt to Scandinavia.
Detractors say AIM is little more than a casino stuffed with small, risky companies. Since the end of 2015, three firms on the 810-member FTSE AIM All-Share Index gained more than 1,500 percent, including a tiny investment firm advised by Panmure Gordon called Monchhichi Plc. About 100 of the companies lost at least half their value.
Panmure Gordon and its competing brokers serve as “nominated advisers,'' or nomads, that act as the primary regulator for their AIM companies while also collecting fees from them, an arrangement that has drawn criticism.
“I find AIM stocks dangerous,” said Daniel Yu, a short seller and founder of Gotham City Research LLC in New York. “They can be easily manipulated by unscrupulous stock promoters, and you have no recourse when you lose money.”
Yu made a 2014 wager against Quindell Plc, an AIM-listed software company that has since changed its name to Watchstone Group Plc. U.K. regulators later probed the business's accounting practices and last year fined its nomad, Cenkos Securities Plc, 530,500 pounds for a lack of proper controls. Cenkos said in August that it had “developed and implemented an extensive remediation program to enhance and improve its systems and controls in relation to its sponsor services.” Officials at Watchstone and Cenkos didn't respond to requests for comment for this article.
To be sure, no market is immune. U.K. grocer Tesco Plc is listed on London's flagship exchange and is paying 214 million pounds to resolve an accounting scandal.
Marcus Stuttard, the head of AIM, said that while the number of companies listed on the exchange has declined as the market matured, continued investment and listings show the venue is trusted.
“We're seeing companies with higher valuations coming to AIM, and we're seeing them raise more money,” Stuttard said. “We're seeing the market performance is stronger.”
Snoozebox, MaxCyte
Panmure Gordon, founded in 1876, swung back to profit in 2016 after posting losses in six of the previous 10 years. The 109-employee firm on Tuesday reported net income of 1.1 million pounds from a 16.7 million-pound loss a year ago.
Some of its biggest deals show the risks of investing in AIM companies. Panmure Gordon helped raise almost 1 billion pounds through share sales over the past five years for AIM clients, Bloomberg data show. The majority of the 30 biggest deals have lost value, while about a third of the companies involved have fallen by more than half. It raised more than 30 million pounds for Snoozebox Holdings Plc, a portable hotel business it said in 2013 was going from “strength to strength.” The stock has since tumbled 99 percent.
Recognizing Risk
Some deals have worked out well so far. Morses Club Plc, a “doorstep” lender that makes weekly house calls to collect its debts, has climbed since Panmure Gordon sold about 34 million pounds of its shares last May. MaxCyte Inc., a U.S. biotechnology company, and Gear4Music Holdings Plc, a U.K. musical-equipment retailer, have both more than tripled since selling shares.
“There's still an element of stigma attached to AIM,” Panmure Gordon's CEO Johnson said after the earnings report. “Ultimately there are problems on the main market as well. We are market-making agnostic.”
Fewer big firms do dealings on AIM. JPMorgan Chase & Co. acts as nomad to six companies, including internet fashion retailer ASOS Plc, seen as one of the market's successes. Yet Deutsche Bank AG, UBS Group AG, Morgan Stanley and Lazard Ltd. have exited. Barclays said it has never been a nomad. It can be difficult to profit from tiny stocks and the risks are too high for some.
“I'm not one of those people that says it's a casino, but it's more risky and at some banks the appetite for risk is low,'' said former CEO Linacre, now chairman of real estate investment company Shareproperty Ltd. and a senior managing partner at public relations agency Instinctif Partners. For large lenders, “making some money from an AIM stock is very hard and fundamentally it's also a reputational issue.''
The American-born Diamond's return to London comes as his effort to build a bank spanning sub-Saharan Africa is showing signs of strain. Atlas Mara Ltd., a firm he co-founded with entrepreneur Ashish Thakkar, bought stakes in lenders in seven African nations, but the shares have fallen more than 80 percent from their peak.
Read next for more on Diamond's African venture
Diamond set up Atlas Merchant Capital in 2013 to buy financial-services assets. In 2015, the firm invested in South Street Securities Holdings Inc., a New York-based broker-dealer that specializes in some of the most basic areas of the fixed-income markets.
He told Bloomberg Television in September that he saw “opportunity” in small and medium-sized European banks. The firm bought a Greek consumer lender in February, and was previously in talks over Italian asset manager Arca SGR and Banca Monte dei Paschi di Siena SpA. The prospect of Britain's exit from the European Union didn't deter Diamond from bidding for Panmure Gordon.
“People have realized the Earth isn't going to fall in and there are deals to be done,” said Adrian Patten, chairman and co-founder of London-based financial technology firm Cobalt DL, which received an investment from Citigroup Inc. last year. He previously worked for Morgan Grenfell & Co., a London merchant bank that was purchased by Deutsche Bank.
For Panmure Gordon, the targeted clients will remain the same following the sale, Johnson, the CEO, said in a phone interview.
“We're champions of growth companies and will remain so,'' said Johnson. “They're seeing what we're doing, agree with the strategy and want to be part of it.''
--With assistance from Trista Kelley and Will Hadfield
To contact the reporters on this story: John Detrixhe in London at jdetrixhe1@bloomberg.net, Donal Griffin in London at dgriffin10@bloomberg.net, Richard Partington in London at rpartington@bloomberg.net.
To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net, Frank Connelly
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
