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Cowen Group, Inc. Q2 2010 Earnings Call Transcript

Cowen Group, Inc. Q2 2010 Earnings Call Transcript

Cowen Group, Inc. (COWN)

Q2 2010 Earnings Call Transcript

August 13, 2010 9:00 am ET


Peter Cohen – Chairman and CEO

Jeff Solomon – COO

Chris White – Chief of Staff


Devin Ryan – Sandler O'Neill

Joel Jeffrey – KBW

John McLaughlin – Sugar Mountain Capital



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Good morning, ladies and gentlemen, and thank you for joining the Cowen Group Incorporated conference call to discuss the financial results for the 2010 second quarter. By now, you should have received a copy of the Company’s earnings release, which can be accessed at the Cowen Group Incorporated Web site, at

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. If you do not have Internet access and would like a copy of the press release, please call Cowen Group Incorporated Investor Relations at 646-562-1880.

Before we begin, the Company has asked me to remind you that some of the comments made on today’s call and some of the responses to your questions may contain forward-looking statements. These statements are subject to risks and uncertainties described in the Company’s earnings release and other filings with the SEC.

Cowen Group Incorporated has no obligation to update the information presented on the call. A more complete description of these and other risks and uncertainties and assumptions is included in the Company’s filings with the SEC, which are available on the Company’s Web site and on the SEC Web site, at


Also on today’s call our speakers will reference certain non-GAAP financial measures, which the Company believes will provide useful information for investors. Reconciliation of those measures to GAAP is consistent with the Company’s reconciliation as presented in today’s earnings release.

Now, I would like to turn the call over to Mr. Peter Cohen, Chairman and Chief Executive Officer. Please proceed.

Peter Cohen

Operator, thank you very much, and good morning, everyone. Welcome to our second quarter earnings call. I’m sitting here today with Jeff Solomon, our Chief Operating Officer; and Chris White, our Chief of Staff, who will be talking a little bit later on the call. Jeff will discuss each operating business and Chris will take you through the financials.

At first, though, I want to give you a little perspective on our view of the global markets and the resulting opportunities for Cowen and the actions we are taking to strengthen the firm and some of our recent successes.

Second quarter represented a striking reversal in investor sentiment towards risk assets from aggressive pursuit in the first quarter to avoidance in the most recent period.

After an initial strong start in April, global equity markets lost significant ground; short-term volatility was elevated, including the technically driven Flash Crash of May 6, which has had profound effects on investor attitudes towards the markets.

Credit markets are also volatile with the loss of liquidity and a flight to quality which elevated U.S. treasuries and high grade corporate debt prices. Commodity markets were beset by a selloff in both crude oil and industrial commodities.

And concerns which played out in the market including sovereign debt risk, threat of an economic slowdown, the double dip, and questionable government policy responses, including actions in China, and certain of these concerns drove correlation ratios higher, with the equity markets and more importantly, across major asset classes.

In the last quarter’s comments we noted the value of holding appropriate hedging positions, and are mindful of the amount of credit spread compression and equity appreciation that already occurred. This approach proves to be prudent during the second quarter, which presented extremely challenging investment and trading conditions.

Both the direct managed and the hedge funds portfolios were only marginally negative for the quarter. A fraction of the over 10% loss was experienced in most global equity markets. There were also some positive outcomes in credit driven and customized separate account portfolios.

Our portfolio managers have retained a cautionary view as we enter the third quarter, and partly what I’m saying is our performance on the investment management side in the second quarter on the first half were quite acceptable. The environment across all of our business units were challenging and as a result the performance very disappointing.

Shortfall in revenues was the result of a decline in banking revenues and the slight decline in commission income, combined with a lack of investment income from the balance sheet, which we had done very well within the first quarter.

We are not counting on the general environment to improve in order to make progress on our goal to return to profitability, and as a result, we are reducing staffing in the investment banking verticals that are showing a consistent lack of progress in generating revenue and have started accelerating cost saving actions in our business operations, which will be implemented over the next few quarters. It is our stated goal to upgrade our origination efforts at Cowen & Company.

To that end, at the end of June, we announced the formation of the credit fixed income group, the hiring of Kevin Reynolds and Len Sheer, who have collectively about 30 years of experience in debt origination.

The groups responsible for fixed income and credit product origination and execution, including public and private debt placements, exchange offers, consent solicitations and vendor offers, and I just want to remind everybody, this is a capability that never existed in Cowen. In addition, we have made significant progress in bolstering our more traditional investment banking products.

We recently announced the addition of Mike Costa as Head of our Merger and Acquisition team. Mike had mainly raised our profile in the M&A area and we believe his vast experience and contacts will benefit all of our investment banking team. The reception Mike has gotten from our bankers and the number of policies already gone out in May is very encouraging.

We also previously indicated that we wanted to increase and refocus our presence in the PIPE and Registered Direct market. In this vein, we appointed Kevin Raidy as the Head of Private Equity Capital Markets in June. As with the debt capital markets, Kevin hit the ground running and he and his team have already received mandates.

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