Brokerage firms’ total asset growth was 73% in 2007 reaching $ 3.3 billion.
Asset structure is quite liquid as 88% is composed of current assets. At end-2006, current assets corresponded to 85% of total assets. Liquid assets, marketable securities and trade receivables (mainly settlement receivables) are the major accounts in assets.
Shareholders’ equity represents 50% of total liabilities. Major liability accounts are money market borrowings and settlement dues.
1. Assets
Liquid assets grew substantially in 2007. Bank deposits is the major item, which increased from US$ 388 million to US$ 1,026 million. The remaining part of the liquid assets consists of repo transactions and money market mutual fund investments.
AGGREGATE BALANCE SHEET OF BROKERAGE FIRMS (mn. US$-IFRS)
Assets 31.12.2005 31.12.2006 31.12.2007
I. Current Assets 1,590.2 1,630.0 2,913.2
A. Liquid Assets 363.5 427.4 1,128.1
B. Marketable Securities (net) 633.6 528.1 795.0 C. Trade Receivables (net) 478.5 571.2 834.9 D. Receivables From Affiliates (net) 15.5 12.6 25.9 E. Other Receivables (net) 62.5 71.5 83.4
F. Deferred Taxes 0.4 0.6 0.5
G. Other Current Assets 36.2 18.5 45.5
II. Non-Current Assets 320.4 280.1 400.2
A. Trade Receivables (net) 1.2 1.5 3.3 B. Receivables From Affiliates (net) 0.0 0.0 0.0 C. Other Receivables (net) 0.0 0.6 0.2 D. Financial Assets (net) 207.4 179.8 250.0
E. Goodwill (net) -2.8 -2.3 12.2
F. Tangible Assets (net) 97.1 85.9 109.8 G. Intangible Assets (net) 7.0 7.8 9.6
H. Deferred Taxes 8.6 5.1 12.7
I. Other Non-Current Assets 1.8 1.8 2.4 Total Assets 1,910.5 1,910.1 3,313.5
Source: TSPAKB
The 49% increase in marketable securities remained far below the total assets’ growth of 73%. Hence, its share in total assets has declined from 28% to 24%. The portfolio allocation of brokerage firms is provided in the table on next page.
Deposits and repo transactions form 55% of the sector’s total investments in financial instruments. However, the notable increase in bank deposits is mainly due to the position of one single brokerage firm. This firm borrowed heavily from the money market and invested in bank deposits to benefit from an interest rate spread.
Financial Assets of Brokerage Firms
mn. $ 31.12.2005 31.12.2006 31.12.2007 Deposits & Repo 363.5 422.2 1,128.1 Government Bonds 462.3 340.0 513.5 Corporate Bonds 0.2 3.7 25.6
Equities 198.2 239.3 330.6
Others 40.3 25.5 45.4
Total 1,064.5 1,030.7 2,043.2
Breakdown
Deposits & Repo 34.1% 41.0% 55.2%
Government Bonds 43.4% 33.0% 25.1%
Corporate Bonds 0.0% 0.4% 1.3%
Equities 18.6% 23.2% 16.2%
Others 3.8% 2.5% 2.2%
Total 100.0% 100.0% 100.0%
Source: TSPAKB
Government bonds’ share in financial assets declined from 33% to 25%, mainly reflecting the investment strategy of this broker. On the other hand, the share of equities also fell from 23% to 16%. There is also a remarkable increase in corporate bonds, which stems from the underwritten holdings of a brokerage firm. “Other” assets mainly refer to mutual funds.
Trade receivables increased by 46% reaching US$ 835 million, due mainly to settlement accounts. There are two major sub-accounts: settlement and margin trading receivables. The sum of settlement receivables from clients and from Takasbank amount to US$ 349 million. Corresponding settlement dues are on the liability side as trade payables. Margin trading receivables increased by 19% to US$
423 million.
Receivables from money market operations amounted to US$ 62 million, out of US$ 83 million other receivables in 2007.
Among the non-current assets, the most important item is financial assets, which basically refers to participations and collateral. Participations is around US$ 202 million, while collateral is around US$ 38 million as of end-2007.
Goodwill mainly reflects the value of participations. In 2007, a brokerage firm acquired an affiliated asset management company and the negative goodwill of the industry turned positive.
Tangible assets are real estates, vehicles, office equipment and the computer network of brokerage firms. There has been no substantial tangible asset investment for a long time in the sector.
Intangible assets mainly refer to software investments and the foundation expenses of brokerage firms.
2. Liabilities
Liability structure changed slightly in 2007 as compared to 2006. Short-term liabilities increased by 98%, shareholders’ equity by 57%. Thus, the share of short-term liabilities increased from 37% to 43%. Contrarily, shareholders’ equity’s stake declined from 56% to 51%. The industry has limited external financing and a strong capital base.
Financial liabilities have hovered at around US$ 60 million over the last couple of years and reflect bank loans. These are generally the loans extended by the parent banks to their subsidiary brokers. External bank lending is not very common.
Other financial liabilities, on the other hand, almost tripled to US$ 674 million. Nearly this entire amount represents overnight borrowing from the money market. As mentioned previously, the increase stems mainly from the transactions of one brokerage firm. This company preferred to borrow short-term from the money market and invest in longer-term deposits.
AGGREGATE BALANCE SHEET OF BROKERAGE FIRMS (mn. US$-IFRS)
Liabilities 31.12.2005 31.12.2006 31.12.2007
I. Short-Term Liabilities 662.0 713.4 1,415.9
A. Financial Liabilities (net) 120.5 61.9 63.6 B. Instalments of LT Financial Liabilities 0.1 0.0 0.0
C. Leasing Debts (net) 0.4 1.0 1.1
D. Other Financial Liabilities (net) 67.7 267.0 674.2 E. Trade Payables (net) 338.3 283.1 498.9
II. Long-Term Liabilities 25.2 24.1 39.6
A. Financial Liabilities (net) 0.1 5.1 5.1
B. Leasing Debts (net) 0.5 0.5 0.2
III. Consolidated Equity of Participations 104.8 105.8 183.0
IV. Shareholders' Equity 1,118.6 1,066.8 1,675.1
A. Paid-in Capital 531.8 543.7 782.7
B. Capital Adjustments due to Cross-ownership -0.8 0.0 0.0
C. Capital Reserves 525.5 364.2 503.4
D. Profit Reserves 126.6 128.3 269.0
E. Net Profit/Loss 203.8 131.2 237.9
F. Accumulated Profit/Loss -268.3 -100.6 -117.9 Total Liabilities and Equity 1,910.5 1,910.1 3,313.5 Source: TSPAKB
Trade payables, as mentioned earlier, mainly reflect settlement dues. US$ 423 million of the US$ 499 million is related to settlement operations.
Debts to affiliates are mostly dividends and bonuses payable.
Other short-term liabilities amount to US$ 71 million, of which US$ 55 million are taxes due.
Long-term liabilities increased to US$ 40 million in 2007, from US$ 24 million a year ago. US$ 15 million of this amount is provisions for severance payments and US$ 10 million are deferred taxes. There is also a long-term bank loan of US$ 5 million booked under financial liabilities.
Consolidated equity of participations increased by 73% to US$ 183 million, due to the acquisition of an asset management company by an affiliated brokerage firm.
Shareholders’ equity rose by 57% to US$ 1.7 billion. US$ 239 million of the US$ 606 million increase stemmed from fresh capital injection. The rest belongs to the increase in reserve accounts and profits.
Capital reserves increased by 38% to US$ 503 million. 75% of capital reserves are inflation adjustments on the equity.
The 81% increase in net profits will be analyzed in the next section.