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MF Global reports first fiscal quarter 2012 earnings

Friday, July 29, 2011

Jon S. Corzine
Opalesque Industry Update - MF Global Holdings Ltd. (NYSE: MF), a broker-dealer providing trading and hedging solutions, today reported earnings for its first fiscal quarter ended June 30, 2011.

First Quarter Highlights

  • Net revenue growth of nine percent for the quarter. The growth reflects expanding client facilitation and principal trading activities. Revenue, net of interest and transaction-based expenses (net revenue), was $314.5 million for the first quarter 2012, compared with $289.4 million for the same period last year.
  • Net revenue per employee increases 18 percent. Net revenue per employee for the first quarter increased 18 percent from the same period last year. The increase reflects the diversification of revenue and upgrade of personnel over the past year.

  • Compensation ratio of 54.4 percent reflects strategic initiatives and realignment of compensation structure. Employee compensation and benefits (excluding non-recurring IPO awards) as a percentage of net revenue was 54.4 percent, compared with 53.7 percent for the same period last year.

  • GAAP earnings increase significantly. GAAP net income applicable to common shareholders was $7.7 million, or $0.05 per basic and diluted share for the first quarter, compared with $0.8 million, or $0.01 per basic and diluted share for the same period last year.

  • Adjusted earnings per fully diluted share were $0.10 for the quarter. Adjusted earnings per fully diluted share were $0.10 for the first quarter 2012, compared with $0.16 for the same period last year.

"With net revenue and GAAP net income at their highest levels in nearly three years, this quarter's results reflect continued progress in MF Global's ongoing transformation," said Jon S. Corzine, chairman and CEO, MF Global. "We have made important strides in diversifying our revenue streams, expanding our trading capacity and upgrading talent, as well as in investing in the infrastructure necessary to execute our vision. We believe the depth and breadth of our transformation will continue as we enhance our capital markets offering, focus our global retail services, and more effectively organize our prime services capabilities."

Mr. Corzine continued, "As we enter the final stages of the firm's core restructuring, we continue to evaluate both organic and strategic actions to accelerate our strategy of building an investment bank that will deliver growing revenues and competitive returns on capital. Our ongoing evaluations and financial performance will dictate the timing of our investment and hiring initiatives."

First Quarter 2012 Results

Revenue, net of interest and transaction-based expenses (net revenue), was $314.5 million for the first quarter, versus $289.4 million for the same period last year. The increase in net revenue was primarily due to the expansion of client facilitation and principal activities, particularly within structured equity finance, commodities and fixed income.

Net revenue per employee was approximately $110,000, up 18 percent for the first quarter, compared with approximately $93,000 for the same period last year. At June 30, 2011, the company had 2,857 employees, compared with 3,024 employees at June 30, 2010.

GAAP net income applicable to common shareholders was $7.7 million or $0.05 per basic and diluted share for the first quarter, compared with $0.8 million or $0.01 per basic and diluted share for the same period last year.

Adjusted earnings were $19.5 million or $0.10 per fully diluted share for the first quarter, compared with $28.4 million or $0.16 per fully diluted share for the same period last year.

"The evolution of our business model is taking shape, as client facilitation and principal activities accounted for nearly half of the firm's overall revenue base," said Henri Steenkamp, chief financial officer, MF Global. "At the same time, we remain diligent on costs, taking a strategic approach to our spending in order to advance our business objectives. Our compensation and non-compensation costs are within the expected range this quarter, and our efforts to identify opportunities to more efficiently manage our operations are ongoing."

In the first quarter, on a GAAP basis, employee compensation and benefits expense (excluding non-recurring IPO awards) was $171.1 million, or 54.4 percent of net revenue, compared with $155.4 million, or 53.7 percent for the same period last year. Adjusted employee compensation and benefits expense was $170.4 million, or 54.2 percent of net revenue for the first quarter 2012, compared with $152.1 million, or 52.5 percent of net revenue for the same period last year.4 The employee compensation ratio increased due to ongoing recruitment and upgrading of personnel, compared with the downsizing actions implemented during the same period last year.

On a GAAP basis, non-compensation expense (which excludes restructuring costs) for the quarter was $112.2 million, compared with $91.4 million for the same period last year. Adjusted non-compensation expense totaled $109.5 million for the first quarter 2012, compared with $90.6 million for the same period last year.4 The increase in non-compensation expense for the quarter was primarily due to higher investment in communication and technology, occupancy and equipment plus professional fees.

Restructuring expense was $2.1 million for the quarter, compared with $9.9 million for the same period last year, reflecting the continued implementation of the company's new strategic plan.

Client payables were $13.6 billion at June 30, 2011, and March 31, 2011.

Business Developments
New Secured Committed Revolving Credit Facility

On June 29, MF Global's U.S. broker-dealer closed on a new, 364-day, $300 million senior secured committed revolving credit facility with a syndicate of banks. The credit facility can be used for the broker-dealer's general corporate purposes, which further increases its liquidity.

Senior Management Appointments

MF Global strengthened its operations function and sales efforts with the appointments of David Simons as global head of Operations and Benita Levy and John Brady as co-heads of the firm's Chicago office. The firm also continued its efforts to attract leading industry talent in areas where there is opportunity to drive increased revenue, improve productivity and better serve clients, particularly in foreign exchange, high-yield/distressed and mortgage backed securities.

Established a Unified Brand and Marketing Approach

MF Global unified its brands around the world to better leverage its resources globally and ensure a consolidated, coordinated marketing approach. As the final step in this consolidation, Lind-Waldock, the firm's flagship U.S. retail business, will change its name to MF Global next month...Full press release: Source
PD

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