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Europe Bailout Offers Surprising Lift to One U.S. Broker: Street Whispers

Stocks in this article: GFIG

NEW YORK ( TheStreet) -- The European Central Bank's announcement Thursday of a new bond-buying program had a wide range of beneficiaries among big European and U.S. financial stocks, but it also appears to have sparked a rally in a struggling U.S. brokerage firm that is trying to revamp its business.

The company in question is GFI Group (GFIG), an interdealer broker that is looking increasingly attractive as a software company, according to Sandler O'Neill analyst Chris Donat.

GFI Group has come under pressure due to lower trading volumes among clients like Goldman Sachs (GS), JPMorgan Chase (JPM) and Bank of America (BAC) in everything from equities to fixed income and energy derivatives.

Indeed, as many products GFI Group trades are moving onto exchanges, investors fear it and other interdealer brokers--which facilitate trades between big financial companies--may be forced to consolidate.

In upgrading GFI Group in May, however, Donat argued the company's high-margin software products could more than compensate for a drop off in trading commissions. But it was GFI's old-fashioned brokerage business that Donat believes was responsible for a 7.25% in the company's shares Thursday.

Nearly 50% of GFI's brokerage revenue comes from Europe, and the ECB's bond-buying program is likely to spur trading activity across a range of fixed income asset classes in the region, Donat contends. With a more than 7% dividend yield, a fast-growing software business, and trading operations that clearly have not breathed their last, GFI Group may be ready to join a growing number of beaten-up financial stocks that have lately shown signs they are ready to get up off the mat.

-- Written by Dan Freed in New York.

Follow this writer on Twitter.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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