Cohen & Company, Inc. (



Q3 2010 Earnings Conference Call

November 9, 2010 10:00 AM ET


Daniel Cohen – Chairman and CEO

Chris Ricciardi – President

Joe Pooler – CFO


Dan Orlow – Orlow & Orlow

Rick Sherman – Oppenheimer



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Good morning ladies and gentlemen and welcome to Cohen & Company, Inc.’s third quarter earnings conference call. My name is Wes and I will be your operator for today. At this time all participants have been placed in a listen only mode. Following formal remarks, the call will be opened to a question-and-answer session and instructions will be provided at that time. As a reminder, this conference call is being recorded.

Before we begin, Cohen & Company would like to remind everyone that some of the statements the company makes during the call may contain forward-looking statements under applicable securities laws. These statements may involve risks and uncertainties that could cause the company’s actual results to differ materially from the results discussed in such forward-looking statements. The forward-looking statements made during this call are made only as of the date of this call and the company undertakes no obligation to update such statements to reflect subsequent events or circumstances. Cohen & Company advises you to read the cautionary note regarding forward-looking statements in its earnings release and in its most recent annual report on Form 10-K filed with the SEC.

In addition, this morning’s discussion also includes non-GAAP financial measures that Cohen & Company believes may be helpful to investors. In the company’s earnings release, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC regulations.

I would now like to turn the call over to Mr. Daniel Cohen, Chairman and CEO of Cohen & Company.

Daniel Cohen

Thank you for joining us for our third quarter earnings conference call. With me on the call are Chris Ricciardi, President of the company and the head of our Capital Markets business and Joe Pooler, our CFO.

During today’s call we will discuss our third quarter results, the ongoing development of our Capital Markets business and the impact of our acquisition of JVB on our businesses.

Overall, we are happy with our third quarter results and with the development of our businesses. We remain focused on pursuing growth in the capital markets, principal investment and new growth asset managed businesses.

But we did experience a goodwill impairment charge associated with the successful wind down of our first distress mortgage fund. Our results remain positive. We experienced growth in our trading revenues, close to 30% year on year and generated $6.6 million of adjusted operating income.

Also in the quarter, we announced our second quarterly dividend, which reflects our confidence in the continued cash generation of our business. Our year to date adjusted operating income per fully diluted share of $1.32 is a testament to the strength of the ongoing business.

Chris will now discuss our capital markets business and some of our growth opportunities.

Chris Ricciardi

Thank you Daniel. I’ll briefly discuss developments in our Capital Markets business. First of all, I think the message contained in our trading results is fairly clear. While we face many of the same challenges that our competitors have broadly reported, where we are in our development cycle and our product mix means that we’re still experiencing growth since last year.

We saw nearly 30% increase in net trading revenue relative to our 2009 Q3 results, where many of our competitors seem to have had an approximately 40% decline over the same period. We attribute these results in part to where we are in our maturity cycle.

From last year, we’ve added many additional resources and capabilities. Sales personnel have increased. We increased the use of capital in our trading operations and we added additional product capabilities. We also believe that our product mix tends to be less impacted by the trading volume decreases seen broadly in flow credit and equities products.

We have a broader mix of product revenue, including a proportion of our business in mortgage asset backed and structured products. One can also see the effects of the general market slowdown in our second to third quarter trading revenues, which are down about 30%.

Going forward, we plan to continue to build out our sales and trading capabilities in ways we believe will be successful. Despite the momentum in market share gains from last year, we feel as though there are greater gains to be had.

For example, until recently, we’ve not had the benefit of a properly suited prime brokered clearing relationship. In October, we changed our clearing firm to Pershing in an effort to enhance those services. Compared to what we had before, this provides us with several advantages.

We’ll be able to open with more counter-parties who want those clearing arrangements. We’ll be able to finance bond inventories such that we will have more products to trade and so that we can enjoy a very significant positive carry made possible by the very low borrowing costs relative to bond yields today, and we’ll be better able to underwrite new issues in larger size.

None of these potential benefits are reflected in our past results because this change went into effect in October and we’re still slowly ramping up this effort.

We also have several initiatives which are still in the early stages, including equity derivatives, SBA pooling, high yield bonds and CD origination. All these businesses are very new and only recently began to generate results and we expect more as they ramp up to full potential.

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