MF Global Holdings Ltd. F1Q11 (Qtr End 06/30/10) Earnings Call Transcript

MF Global Holdings Ltd. F1Q11 (Qtr End 06/30/10) Earnings Call Transcript
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MF Global Holdings Ltd. (MF)

F1Q11 (Qtr End 06/30/10) Earnings Call Transcript

August 5, 2010 7:30 am ET

Executives

Jeremy Skule – Chief Communications Officer

Jon Corzine – Chairman and CEO

Randy MacDonald – CFO

Analysts

Rich Repetto – Sandler O’Neill

Maria [ph] – KBW

Chris Allen – Ticonderoga

Howard Chen – Credit Suisse

Ken Kosin – Barclays Capital

Ken Worthington – JP Morgan

Mike Carrier – Deutsche Bank

Presentation

Operator

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Good day ladies and gentlemen, and welcome to the fiscal first quarter 2011 MF Global conference call. Today’s call is being recorded. My name is Michele, and I will be your conference coordinator for today. (Operator instructions) I will now turn the presentation over to your host, Mr. Jeremy Skule, Chief Communications Officer. Please proceed.

Jeremy Skule

Good morning, and thank you for joining our first quarter 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 June 30, 2010. Any such forward looking statements are subject to risks and uncertainties indicated from time to time in our SEC filings. Therefore, our future results of operations could differ from historical results or current expectations as more formally discussed in our SEC filings. The company does not undertake any obligation to update publicly any forward looking statement.

The information made available also includes certain non-GAAP financial measures as defined under SEC rules. The reconciliation of these measures is included in our earnings release, and can be found on our website and in our SEC filings.

With that, I will now turn the call over to Jon.

Jon Corzine

Thank you Jeremy and good morning everyone. Thank you for joining us on this quarterly call. Today, we update you on our results and the initial steps taken to return our operations to sustain profitability, all that as we go about resetting the firm’s strategy direction. After my comments, Randy will provide details on the quarter’s financial performance, with summary results of which were presented on slide 3.

For the quarter, GAAP earnings per share were $0.01, following the $0.78 loss last quarter. Adjusted earnings, which factor out the UK bonus taxes, restructuring costs and residual IPO awards, were $0.16, up from the $0.17 loss the previous quarter.

Net revenue was up 20% quarter-over-quarter and adjusted EBITDA improved from a negative $8 million to a positive $67 million. Obviously, these numbers reflected a good first step towards the turnaround of the firm. While our quarterly performance speaks to the progress made, it in no way meets our long-term objectives or reflects the firm’s potential. The results are simply a positive first step, reflecting our commitment to strategic restructuring and growing profitability. Much work remains in the next few quarters, as we build future business plans, grow market share and improve execution.

In that context, we realized that cost reductions and strong controls are absolutely a necessary foundation for a developing strategy that will emphasize revenue growth. Tactically, the June quarter was dominated by a series of restructuring and cost reduction measures, most of which are completed. Randy will detail more on the specifics of this effort.

In future quarters, we will sustain our cost control disciplines, while giving greater attention to growing revenues, growing revenues being the central requirement to our long-term success. To that purpose, our strategic planning process is in its early stages, and initiatives will be developed and rolled out over the next 4 to 6 quarters. The first step in this process addressed our retail product line, has developed in our review. Our plan is to organize and integrate all of our retail activities globally around a single multi-asset, multicurrency electronic platform.

We intend to use this platform in combination with our sales representatives to focus on growing our market share among our basic retail and high net worth clients, with substantial attention also to middle market, corporate and finance clients, particularly introducing brokers. We also began last quarter the fundamental and incremental process of embedding client facilitation risk-taking in all of our core product lines, with emphasis on incremental.

We have taken this initiative without a significant buildup in our measured value at risk. At quarter end, our VAR usage was approximately $6 million. On a day-to-day basis, we’re generally using less than half of our board authorized risk authority [ph], which remains unchanged since I joined MF Global. While we are executing more principal transactions, we have implemented these activities with a high turnover philosophy, confirmed in part by the reduced size of our balance sheet and our unchanged usage of regulatory capital.

Let me repeat, we have added revenue generating capacity that serves our client’s without substantially increasing measured risks for use of regulatory capital or balance sheet. Equally strategic, we have also moved aggressively to implement a one firm mentality and culture. Our changing reward system seeks to better align client, shareholder, and employee interest, reflecting firm results as well as individual performance.

To that end, we have significantly reset our compensation to net revenue objectives. For the quarter, the compensation ratio dropped to 54%, down from 69% for all of last year on a GAAP basis. And while there has been some loss of personnel and revenue due to the new payout structure, there has also been broad success in retaining our most productive people in the businesses most key to our future success.

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