MF Global Holdings Ltd ( MF)

F2Q 2011 Earnings Call

October 25, 2011 7:30 am ET


Jeremy Skule – Chief Communications Officer

Jon S. Corzine – Chairman and Chief Executive Officer

Henri J. Steenkamp – Chief Financial Officer


Richard H. Repetto – Sandler O’Neill & Partners LLP

Howard H. Chen – Credit Suisse

Michael Carrier – Deutsche Bank

Roger A. Freeman – Barclays Capital

Chris Allen – Evercore Securities

Kenneth Worthington – JPMorgan

Rob Rutschow – CLSA

Ed Ditmire – Macquarie Securities

Niamh Alexander – Keefe, Bruyette & Woods



Good day, ladies and gentlemen, and welcome to the Fiscal Second Quarter 2012 MF Global Earnings Conference Call. My name is Tory 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 towards 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.

Jeremy Skule

Good morning, and thank you for joining our call. With us today are Jon Corzine, Chairman and CEO, and Henri Steenkamp, our CFO.

The information made available on this call contains certain forward-looking statements that reflect MF Global’s view of future events and financial performance as of September 31, 2011. Any such forward-looking statements are subject to risks and uncertainties indicated from time to time in our SEC filings. Therefore, future results of operations could differ materially from historical results or expectations as more formally discussed in our SEC filings.

The company does not undertake any obligation to update publicly any forward-looking statements. 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, which can be found on our website or in our SEC filings.

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

Jon S. Corzine

Thank you, Jeremy, and thank you all for joining on our second quarter call. This morning, Henri and I will first update you on our financial results as summarized in slide three in our packet, and then we will pose you on the implementation our strategic plan, the status of our European sovereign exposure, and finally, I will offer a perspective on the path forward.

Let me begin by acknowledging that our September’s quarter’s results and actions were defined by the well reported stressed conditions experienced by global markets. Those conditions of hyper volatility brought on in part by sovereign risk including for the U.S., bank capitalization concerns and non-standard Central Bank actions undoubtedly slowed the translation of our strategic progress into financial performance. Without question, the quarter’s market environment was as difficult as any of I’ve experienced in my 30 plus years in finance.

Accordingly, we, on balance, reduced our principal exposures and our proprietary and client facilitation books, which in turn resulted in limited principal transaction revenues, but it also avoided any major trading losses. Year-over-year, principal revenues decline by $33 million, while commissions were relatively flat and net interest income was up.

Overall, our quarterly revenues totaled $206 million down from last year’s comparable of $249 million. I would note that after much review, we did opt to not recognize $26 million in a debt valuation adjustment.

Reflecting our intention over the last six quarters to reset our business strategy, there was however, restructuring charge of $10 million, negative, legal and financial adjustments of $22 million, and a non-cash deferred tax write-off in the U.S. and Japan of $119 million.

In aggregate, the above mention items generated a per share loss of $0.83 for the quarter. Henri will review the numbers in detail, but to summarize, the GAAP loss is $1.16 per share, while the adjusted loss is $0.09 per share. If we had elected the debt valuation adjustment option, the adjusted loss would have been $0.01 per share.

Regrettably, these results break the four-quarter string of increases in revenue and improvement in the adjusted bottom line. We make no excuses. These results must be reserved and at the close of my remarks, I will outline near-term actions we will take to do precisely that.

That said, on strategy, we have stayed focused on closing out the bulk of our initial restructuring actions, particularly those that will align our capacity with near and intermediate opportunities we see for delivering earnings. For instance, during the quarter, we restructured our equity business to focus on demonstrated capabilities and areas of competitive differentiation, specifically, commodities, consumer products and global policy research.

Our actions will reduce equity research and sales trading – sales and trading staff by more than 30% in Europe and Asia. We also completed the refitting of our mortgage, credit and foreign exchange businesses, unified our brand across all firm activities and advance the build-out of our multi-asset, multi-currency electronic platform design to meet demand we see from retail and professional traders for a single point of entry for our products.

The environmental conditions, while difficult, also provided opportunity. Over the quarter, we saw a significant expansion of our client base across most of our capital market and retail activities. The dislocations in markets and the deleveraging of competitors balance sheets expanded the number of underserved clients among medium sized financial institutions, commodity operators and professional traders. This opening allowed our redirected sales force to meet a growing market need.

Our client list are up net 7% quarter-over-quarter and as much as 25% from a year ago. Just as we’ve been able to expand our client base in this period, the opportunity to attract quality talent has also improved as has the terms on which people join. We anticipate the near-term benefits from a broader client base served by top producers will be substantial.

Additionally, the environment and the employment arrangements put in place with new hires has given us much needed flexibility with respect to compensation both in the quarter and as we go forward.

Specifically, as revenues fell, our total adjusted compensation declined 25% sequentially. In short, the strategic actions taken over the past six quarters are significant and position our firm to grow revenues on a reduced cost basis, under a less stressful market conditions, we are confident. We have build a substantial capacity for growth and earnings.

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