Piper spinoff validated; 04.20.06; Pioneer Press
Profits grow in capital markets; brokerage unit sale pending
BY SHERYL JEAN
twincities.com
Posted on Thu, Apr. 20, 2006
Pioneer Press
"If Piper Jaffray Cos. needed any reinforcement of the decision to shed its retail brokerage division, it need look no further than its first-quarter numbers.
"We are very confident in our firm's direction," CEO Andrew Duff said Wednesday in a conference call.
Basically, the company is ditching its worst performing business to focus on its best — capital markets, which includes investment banking, mergers and acquisitions, and sales and trading to corporate investors.
Piper's profits more than tripled in the quarter, largely because of the business the company is keeping.
Capital markets revenue jumped 39 percent to $126 million, while the brokerage business reported a 2 percent increase in net revenue. The retail brokerage business accounts for about 40 percent of Piper's total revenue.
Overall, Piper's first-quarter net profits were $23.9 million, or $1.25 per share, up from $7.3 million, or 38 cents per share, a year earlier, aided by a $6.6 million gain from the swap of two New York Stock Exchange seats. Though profits were up in both segments of the business, capital markets provided the greater share of operating profits, $23.8 million, compared with $8.2 million for the private client business.
It was the Minneapolis-based company's third straight quarter of improved financial results and its best performance since spinning off from U.S. Bancorp in late 2003.
Duff hinted at what Piper might look like after selling its retail brokerage unit to Swiss banking giant UBS AG, in a deal announced last week. Piper plans to invest the $500 million gained from the sale in its capital markets business, which includes investment banking, merger and acquisition services and sales and trading to corporate investors, he said.
Duff said last week that Piper management concluded the retail brokerage business and the capital markets business were too different to manage under one roof.
Piper will pursue "new geographies, new products and perhaps new business," such as asset management, he said Wednesday. The company recently expanded its investment banking business in New York and Europe.
Investors appeared to be pleased. Piper shares rose 8 percent, or $5.25, to $72.65, a record high closing price.
Piper's total revenue rose 27 percent to $228 million, with capital markets as the main contributor.
Investment banking revenue climbed 44 percent, and revenue for sales and trading to corporate investors rose 35 percent. In the quarter, Piper completed 24 stock offerings that raised $4 billion and 14 mergers and acquisitions valued at a total of $2.2 billion. Piper has a strong investment-banking pipeline for the rest of the year, including a backlog of 12 initial public offerings, Duff said.
By comparison, Piper's brokerage business has struggled to grow amid market, regulatory, technology and recruiting challenges since the spinoff.
Piper continued to lose brokers in the first quarter. It had 817 brokers as of March 31, down 25 people in the past three months and down 49 from a year ago. No details on the most recent departures were available.
Keeping brokers is key: Piper could receive $75 million more from UBS based on broker retention between March 31 and just after the deal closes, Piper spokeswoman Susan Beatty said." |
