MF Global CEO Discuses Q3 2010 Results - Earnings Call Transcript
MF Global Holdings Ltd. (
)
F2Q11 (Qtr End 09/30/10) Earnings Call
November 04, 2010 07:30 am ET
Executives
Jon Corzine - Chairman and CEO
Randy MacDonald - CFO
Analysts
Howard Chen - Credit Suisse
Rich Repetto - Sandler O'Neill
Niamh Alexander - KBW
Roger Freeman - Barclays Capital
Ken Worthington - JP Morgan
Chris Allen - Ticonderoga
Michael Carrier - Deutsche Bank
Donald Fandetti - Citi
Robert Rutschow - CLSA
Presentation
Operator
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MF Global Ltd. F1Q10 (Qtr End 6/30/09) Earnings Call Transcript
Good day, ladies and gentlemen, and welcome to the Fiscal Second Quarter 2011 MF Global Earnings Conference Call. My name is Justin and I will be your conference coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session toward the end of today's conference call.
I will now turn the presentation over to your host for today's call, Mr. Jeremy Skule, Chief Communications Officer. Please go ahead sir.
Jeremy Skule
Good morning and thank you for joining our second quarter's earnings call. With us today are Jon Corzine, Chairman and CEO; and Randy MacDonald our CFO. The information made available on this conference call contains certain forward-looking statements that reflect MF Global's view of future events and financial performance as of September 30, 2010. Any such forward-looking states are subject to risks and uncertainties indicated from time to time in our SEC filings. Therefore future results of operations could differ from historical results or current expectation as more formally discussed in our SEC filings.
MF Global does not undertake any obligation to update publicly any forward-looking statement. The information made available also includes certain non-GAAP financial measures that's defined under SEC rules. Direct conciliation of these measures is included in our earnings release which can be found on our website and in our SEC filings.
I will now turn the call over to our Chairman and CEO, Jon Corzine.
Jon Corzine
Thank you, Jeremy. Good morning everyone and thanks for joining us today. Randy and I will update you on our second quarter results, the progress we've made since April when transforming MF Global from a broker to a broker dealer. The metrics that demonstrates our restructuring and the next steps will to implement our developing strategic plan. While we’ve made a good start in our transformation, we have significant work ahead of us. That said, I believe we’re on track and that positive signs of improvement are evident.
Slides three and four provide an array of metrics over the last six months and by comparison year-over-year. To summarize, our balance sheet is smaller and has remained very eloquent. As we have reduced leverage; we have expanded our earnings capacity. At the end of the quarter total assets were down 12% since year-end and 25% year-over-year. Our leverage ratio has declined meaningfully on both a simple absolute measure and on an adjusted basis deducting so called zero-wait assets. Our level three assets are diminimus and overall, we are working with a very clean balance sheet.
Our equity capital was higher by 21%, its permanency significantly improved in its cash cost lowered. At the same time, we have seen growing client confidence in the firm reflected in the growth and credit balances which reached a two-year high by the quarter’s end. These new balances expanded our earnings capacity.
The dashboards also show there is still work to be done on the revenue front, even as head count compensation and co-ops have been significantly cut. Revenues were lower on reduced volumes of client and market activity in the quarter that was evident across the globe. Our volumes were also held back by personnel reductions, planned and unplanned; the unplanned primarily in our European brokering businesses. Even with fewer sales personnel, our exchange volumes and market share remained stable for the quarter and year-over-year.
Additionally, investing credit balances was challenging as US dollars short rates remained at historically lows. Interest income was even in that context somewhat enhanced by our global reach and diversification.
Our principle trading activities contributed modestly to quarterly revenues as we cautiously moved into dealer and strategic trading activities. Our average daily VAR for the quarter was $4.8 million well below 50% of the risk appetite authorized by our board. Trading activities and market exposure will grow as we take on new personnel gain experience working together and as opportunities present themselves.
While these observations reflect progress our positive year-over-year adjusted net income numbers of $3.8 million for the quarter and $32.2 million for the first six months of the fiscal year are in no way satisfactory. It is also noted that our GAAP results are impacted by a number of items we believe are not reflective of operating performance and were anticipated by our guidance last quarter. Randy will walk you through those numbers.
In this context our near-term imperatives are to increase top line revenue, deliver GAAP profitability, and move towards double digit returns on equity. As I said last quarter, we believe that transformation process will take between 4 and 6 quarters. I reiterate as I did it at starting my remarks we are on course to meet that timeline.
Now, just as we have made measurable progress in the numbers we are also advancing our strategic agenda by enhancing our executive leadership and producer ratings. Slide 5 gives an overview of the key aspects of our restructuring process. In this regard, most important for our long-term success is the quality of our people and their leaders.
During the quarter, we brought on strong new leadership for our operations, technology and control activities, the Asia Pacific region and institutional sales. Public announcements are already out on Brad Abelow joining us as our new Chief Operating Officer and Michael Blomfield as our Managing Director for Asia Pacific. Both have extensive market and managerial experience. The biographies are available on our corporate website.
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