Cohen & Company Inc., (COHN)
Q2 2010 Earnings Call
August 3, 10:00 am ET
Daniel Cohen – Chairman and Chief Executive Officer
Chris Ricciardi – President
Joe Pooler – Chief Financial Officer
Eric Foster - Helsey & Cabot
Mark Davis - Davis-Ross Investments
Dan Orlow – Tensor
Herbert Lust - Greenwich Fine Arts
Good morning ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2010 Cohen & Company Inc. Earnings Conference Call. My name is Wes and I will be your operator for today. During the presentation, all participants will be in a listen-only mode. After the speakers’ remarks, you will be invited to participate in a question-and-answer session. (Operator instructions). As a reminder, this conference is being recorded.
Before we begin, the company has asked me to read the following statement: you are cautioned that many statements made during this call are forward-looking statements that are based on assumptions regarding the economy and financial markets that are subject to a number of risks and uncertainties as set forth in the company’s earnings release and at SEC filings. Please read the statement in today’s release regarding forward-looking information.
I would now like to hand the call over to your host for today’s call, Mr. Daniel Cohen, Chairman and CEO; please proceed
Thank you Wes and thank you everyone for joining us for our second quarter results conference call. With me on the call are Chris Ricciardi, the President and head of our capital markets business, and Joe Pooler, our CFO. We will discuss the second quarter results, our ongoing capital markets business and its continued development and the impact of our recent strategic transactions and global developments on our business. I will give an overview and discuss briefly the recent strategic transaction where we monetized our bank’s CDO management fees.
Chris will then talk about the capital markets business and the impact of financial reforms and Joe will give some detail on the financial results and some financial color on our recent transaction.
We were happy with the quarter, we were happy with the development of the business and we were happy with freeing financial resources to pursue our growth in the capital markets principal investment and new growth asset management businesses.
Our results continue positively. We earned $0.20 per share. We experienced growth in our trading revenues of over 100% year-on-year. We continued to develop new capital markets businesses and we completed our second new issue of the year in fixed income.
We announced a new dividend which reflects our confidence in the continued cash resources of our business. Our adjusted net income of $0.40, which represents operating income computing in accordance with GAAP before depreciation and amortization, impairments of intangible assets and share-based compensation expense, all items that are non cash reflect the strength of our ongoing overall businesses. And these are businesses that we are committed to grow.
Our asset management revenue from our CDO management business continued to shrink, but in a difficult environment to raise capital, we’ve had some success. Our Deep Value funds in our European and other separate accounts under management have grown from 161 million at June 30, 2009 to 523 million at June 30, 2010. These generally carry a higher base management fee and we recognize our profits from our carried interest only after we return 100% of the invested funds and between 8 and 10% return.
Our Strategos Deep Value funds have had approximately a 22% return annualized. As we announced last Thursday, we signed an agreement to sell our Alesco contract rights, and we entered into a related 3 year service agreement for an aggregate total proceeds of up to 44.5 million, including a potential earning of up to 12 million. We also closed on a new $14.6 million 2 year secure credit facility which refinanced and extended the maturity of our previous credit facility at a reduced rate.
And finally, we made a cash offer to purchase 9.5 million of our subordinated notes at 80% of par. All of these transactions are significant developments for our company because they free up resources, they free up interest payments that we’re making, they free up management time and they free up the ability that we have to invest in the growing parts of our business so we were able to essentially monetize, over the next 3 years, part of our historic business and really redeploy that in what we think will drive substantially continued growth and the earnings of our company.
Our recent transaction to sell the management of our Alesco bank CDO funds, which represented 40% of our assets under management at June 30, and as I had just said the historical basis for what we were doing, and 40% of our second quarter asset management revenue really does allow us to generate these cash resources and we will be able to pursue other opportunities in asset management, principal trading and capital markets business.
If we’re able to repurchase our subordinate in notes, this will reduce our interest expense by 1.1 million per annum. We’ll increase our flexibility to deploy our cash, which is at 30.9 million at the end of the quarter and our capital markets and principal businesses thanks to the new bank facility we put in place.
Again, just to reiterate, the trust preferred CDOs for the banks were not a growth opportunity for us and their monetization allows us to pursue real growth.