INTERVIEW: Wood & Co - still plucky but not so small anymore

By bne IntelliNews February 27, 2008

Beth Potter in Prague -

If you hadn't been paying close attention, Prague-based Wood & Company might still seem like the plucky little Central European investment bank that could. Only it's not so little these days.

With rapid expansion in recent years onto the Frankfurt Stock Exchange, the Vienna Stock Exchange and regional bourses in Budapest, Bucharest, Ljubljana, Sofia and Warsaw, Wood's expansion means higher trading volumes, which the company just couldn't get by playing solely on the Czech market, says Andrea Ferancová, one of the four owner-partners at Wood.

For example, the Prague Stock Exchange currently might see trading volumes of about €200m per day, while Turkey enjoys volumes of about €1.5bn per day. By entering the new markets, Wood now sometimes sees total trading volumes of a "quite interesting" €800m per day, Ferancová says.

"For us, there is never enough growth, but it's a little bit under margin pressure right now," says Ferancová. "We want to increase our market share in all markets."

With hard work, that plan has made Wood quite successful in places like Hungary, for example, where it now occupies the number-three position in trades after entering just a couple of years ago. On the Warsaw Stock Exchange, which Wood re-entered a little over two years ago, the company received an award in late 2007 for the highest equity turnover for a broker from outside the country. In December, that was about 3.5%, compared with 1.14 % for the same month the year before. It wants to grow that position to 5% of all trades on the WSE in 2008, Ferancová says.

All that growth across Central and Eastern Europe is good for investors, too, Ferancová says, since Wood offers financial products across all of the countries in which it works. Bank chains also offer such investment vehicles, but aren't as flexible when it comes to trading equities, she says. "We have managed to keep ourselves very flexible and client-oriented, which is why we're able to grow our market so quickly," Ferancová says.

The competition

Wood's biggest local competitor Patria Finance, owned by Belgian-based KBC Bank, believes that the Prague Stock Exchange's recent addition of a futures market provides room for all the players to grow. David Marek, Patria's chief economist, says workers at both companies often end up almost working in tandem as they work with investors, which is no problem when the economy is humming along at its current rate. "It's positive. We need more sophistication to provide investors and firms with better access to meet each other," Marek says. "There's more liquidity in the banking sector and a lack of investment opportunities, so firms like ours can help to bring money from people with access to them to people with a lack of access to them."

Probably more worrisome than competitors at the moment is the volatility in the global economy and the possibility of the US slipping into recession. Ferancová claims Wood should be able to weather those types of dips because its funds are diversified, but the continued weakness of the dollar against the crown and the euro has been keeping her up late at night. The Czech koruna has hit a series of fresh highs against the euro and dollar in February, reaching at one point 25.04 to the euro and 16.86 to the dollar.

"If I worry about something, I worry about the volume in the market and if it would go down significantly," Ferancová says. "If the (US) stock market drops by 50%, suddenly the volume is half and the money value like the euro and the Czech crowns is very important."

Ferancová's worries have historical roots. Wood was started by Richard Wood in 1991 as a corporate finance advisory business cooperating with Salomon Brothers. He decided to retire following the Russian currency economic crisis in 1998, selling the company to his managers in 2000 and 2001.

But there's also tremendous upside potential in this part of the world as the US economy struggles, Marek argues. Patria focuses on being the best, not only against competitor Wood, but also against potential new entrants in the investment/equities sphere, he says. "There's always a potential threat for new competition in the business, but the more services we can offer, and the higher levels of service, it's just natural competition."

At least for now, that competition remains friendly and healthy.

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INTERVIEW: Wood & Co - still plucky but not so small anymore

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