American investment bank Jefferies Group faces a fight to retain the top UK clients it gained through taking over historic British stockbroker Hoare Govett, with circling rivals already luring away oil and gas company Tullow Oil .

Tullow said on Thursday it had appointed Barclays Capital and Morgan Stanley as joint corporate brokers, replacing Hoare Govett and Bank of America Merill Lynch (BoAML) , just a day after Jefferies sealed its purchase of the business from Royal Bank of Scotland .

Others are also lining up to try and poach key clients from Hoare Govett, hoping that the acquisition will make companies rethink who they want as advisers on investor issues, several brokers told Reuters.

A mainly British phenomenon, corporate brokers offer advice to clients for minimal fees, usually in the hope of winning their bank more lucrative business, such as M&A or equity fundraising, further down the line. They also act as a go-between for their clients and investors.

Hoare Govett, one of the oldest and best-known UK brokers, has shed clients in recent years after a series of takeovers, and has lost more than a dozen top FTSE 100 clients since 2005.

But it still retains an enviable client list, including defence group BAE Systems , oil explorer Cairn Energy and close to 30 FTSE 250 companies.

I suspect every name on that list will be putting the brokerships up for review, said one rival corporate broker.

Jefferies, as the incumbent, is in pole position. The brokerships are theirs to lose. But every corporate house in the City will be on the attack ... It is a very difficult job to be immediately in defend mode.

Rivals such as Barclays Capital and RBC Capital Markets have been ramping up their corporate broking teams in the past two years, heating up the competition for customers and forcing even leading brokers such as JPMorgan Cazenove to work hard to retain theirs.

BarCap has won 26 broking mandates since the start of 2010, gaining market share fast. Smaller, specialised houses such as Oriel Securities and Numis Securities, which had been circling the Hoare Govett team from afar, have also been growing gradually, hiring piecemeal and adding customers one by one.

Numis said on Thursday it had won 11 corporate clients since the start of 2012.

Hoare Govett brings with it a brand that it still synonymous for many in London with the traditional UK business of broking, although some of its key staff have left in recent years.

These include well-known broker Peter Meinerzhagen, now a director at Oriel, a firm set up by Hoare Govett alumni.


Jefferies will be gaining 50 Hoare Govett and RBS staff, like team head Paul Nicholls, who will have to fend off encroaching rivals though the pull of their own personal relationships with customers and the enduring lure of their brand.

Rivals said Jefferies was likely to have locked new joining staff into staying, although the firm declined to comment on contracts.

After expanding aggressively in other areas of European investment banking in the past three years, including mergers and acquisitions, Jefferies will also have more than pure broking to offer.

The business is tied to the wider services you can offer, and at Jefferies that's pretty substantial now. In those terms it's positive for any company to be working with Jefferies, said Shailesh Raikundlia, analyst at Espirito Santo Bank.

Some of Jefferies' top hires in Europe since 2008 have been M&A bankers specialising in particular industries.

Its joint heads of European investment banking, Dominic Lester and Peter Bacchus, relatively recent additions from UBS and Morgan Stanley, are specialists in technology and metals and mining, respectively.

But Jefferies has struggled to make immediate headway in M&A industry rankings for EMEA, and did not finish in the top 25 advisers in the region in 2011, according to Thomson Reuters data.

It will also be facing rivals making similar pitches about the scope of the services they can offer clients, with many arguing they can offer more in the way of underwriting or equity distribution.

It is all very well having a strong personal relationship but if you haven't got the platform to deliver the sophisticated suite of advice, services and products that the client wants, that relationship gets very stretched, said Alisdair Gayne, head of Corporate Broking at Barclays Capital.

Changes in brokerships may not be immediate, giving Jefferies some time to prove itself as some customers hold fire.

Unless a company is planning to do something over the next six months they may wait ... It is close to year-end, companies have lots on their mind. It is not up there in their priorities, said one corporate broker.

If brokerships do come up for review, however, others will also have to be on the defensive, as that could put their own ties to customers under scrutiny too, as BoAML found out with Tullow.

If you are a co-broker to a lot of RBS's clients then I am sure that is a concern, said another broker.