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Greenhill Rushes Results to Calm Investors

Stocks in this article: GHL

Greenhill (HGL) rushed out strong second-quarter earnings ahead of schedule on Sunday as the U.S. investment bank sought to calm investor fears following the departure of senior executives.

Shares in Greenhill had dropped 12% on Friday, the largest one-day fall in the company's history, following reports that a third managing director had departed to a rival.

Timothy George, one of Greenhill's longest-serving employees, is to take a job with competitor Lazard (LAZ). His departure follows the loss last month of Simon Borrows, founder of Greenhill's European operations, to private-equity group 3i, and Alejandro Przygoda to a post at Credit Suisse (CS).

However, people familiar with the situation played down the significance of the recent departures, arguing that the latest set of results demonstrated that the business remained robust.

Greenhill announced second-quarter revenue of $90.8 million, an increase of 9% on the same period last year. Advisory revenues of $85.6 million represented a 38% increase on the year before.

Reliant in large part on the volume of merger and acquisition deals, net income in the quarter of $21 million was up from the $17.5 million made in 2010, double the consensus prediction of analysts, and a rebound from losses in the first quarter.

The proportion of revenue paid in compensation returned to a more normal 47% of revenue, from 75% in the first three months of the year.

In February, Greenhill announced the firm would be making a shift toward paying employees a greater proportion of their pay in stock. Shares in the boutique advisory firm have declined 43% this year as financial stocks have fallen out of favor with investors.

Unlike some other so-called independent advisers that have branched out into asset management or capital markets work, Greenhill has remained focused on providing advisory services, such as advising companies on M&A deals.

While M&A activity globally is up about 26% in the first half of the year, and more than 40% in the U.S., the recovery in deal-aking has been somewhat sporadic, failing to meet some advisers' expectations for a pick-up.

After a busy first three months -- in which Greenhill advised on AT&T's (T)$39 billion deal to buy T-Mobile USA -- activity slowed in the second quarter as worries about sluggish economic growth and European sovereign debt prompted financing markets to take a pause and management teams to become more cautious.

The results follow a strong start to the earnings season last week, with JPMorgan Chase (JPM) reporting a 13 per cent jump in quarterly profits on fewer loan defaults and surprisingly resilient trading revenue, defying expectations that a litany of economic, legal and regulatory challenges would weigh heavily on US banks' results.

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