Numis warns of bonus hit as equity market activity dries up

Numis warned bonuses would be lower for its staff this year after a sharp decline in IPOs, equity raisings and other capital market activity.

The UK corporate broker said UK investor sentiment would remain weak into 2023, as it posted a more than 70 per cent drop in full-year pre-tax profit.

The slump followed a similar warning from rival Peel Hunt, which last week said activity had fallen to a “multi-decade low”, all but wiping out its pre-tax profits in the six months to September.

Brokers and investment banks have taken a hit as a result of the slowdown in equity-raising activity and a dearth of initial public offerings earlier in the year.

Numis noted that the unfavourable market backdrop that had stopped some IPOs and other capital market activity through much of 2022 was ongoing, although fees from the flurry of takeovers for UK-listed mid-market corporates had partially offset the resulting decline in revenues.

The group did not disclose details of its bonus payments but said total costs decreased to £124mn, from £148mn the year before, primarily due to a reduction in variable pay. The fall in variable pay helped offset the decline in revenue, the company said.

Year-end banker bonuses are expected to be much lower this year across the market.

For the 12 months to September 30, Numis’ revenue fell by a third to £144.2mn — down from a record high achieved in 2021 — as UK equity capital markets deal volumes fell to a 10-year low. Pre-tax profit was £20.9mn, down from £74.1mn the previous year.

Numis said the IPO market in effect “closed after the first quarter and equity issuance by clients declined significantly as market turbulence impeded corporate growth strategies”. 

The company added that its “experience suggests that market uncertainty and macroeconomic conditions are likely to affect the investment banking industry for some time”.

Numis reported a slight decline in corporate clients to 176 following a rise in takeovers across the UK market. During the year, 15 clients were lost due to transactions.

Staff costs were reduced by 24 per cent, despite an increase in average headcount by 11 per cent as the result of a new site opening in Dublin, costing the company an additional £1.5mn.

Despite reiterating a negative outlook for capital markets activity, Numis said M&A activity was still “strong”.