LaBranche could lay off more than half its traders
Fri Dec 1, 2006 10:30am ET
NEW YORK (Reuters) - LaBranche & Co.(LAB.N: Quote, Profile , Research), one of the biggest market makers on the New York Stock Exchange, could lay off more than half its floor traders in coming months as trade automation increases, the company's chief executive said.
The company is facing difficult times, as investors increasingly trade electronically instead of opting to work with human market makers.
But CEO Michael LaBranche said in an interview that LaBranche can still increase its profits, as overall trading volume on the Big Board increases, and as LaBranche cuts expenses through layoffs and debt buybacks.
The NYSE, where trades were traditionally done by humans, is offering increased electronic trading for over 200 stocks, and plans to expand that to every equity security listed on the exchange.
In the "Hybrid Market," customers will have a choice of using electronic trading for straightforward trades, or using a human market makers if other buyers or sellers are hard to find.
Trading systems are also being updated, so floor brokers can execute and confirm trades with fewer keystrokes and less time than previously.
That's why LaBranche can lay off floor traders. In 2001, the company had 325 traders on the NYSE floor, but is now down to 160. That figure could fall by half or even more in coming months, said LaBranche, great grandson of the company's founder.
"This is what happens when businesses automate," LaBranche told Reuters on Thursday.
The company can also cut costs by buying back debt, which carries high interest rates. LaBranche can call $200 million of debt in May 2007 at a 4.75 percent premium to face value, and another $260 million of debt in 2008 at a 5.5 percent premium to face value.
TRADING MORE PRODUCTS, WAITING FOR HIGHER VOLATILITY
But LaBranche expects to not just cut costs--it's hoping to boost revenues through measures including trading a broader array of products, and hoping that volumes and stock market price fluctuations ramp up.
When share prices fluctuate more wildly, finding buyers or sellers for securities on electronic trading systems can be difficult, forcing more customers to trade with human specialists, and boosting specialists' revenues.
"I think (volatility) is cyclical. I can't think that volatility is permanently disappearing," the CEO said.
If volatility does rise, LaBranche's business should do better.
Electronic trading could also boost overall trading volume enough for market makers' revenues and profits to rise, LaBranche said.
"Increased access should increase volumes, and volume is the most important thing," LaBranche said.
Investors are not so sure. LaBranche shares have risen just 7 percent this year, lagging the 21 percent increase in the sector, as measured by the Amex Securities Broker Dealer index
"Our stock price reflects people's opinion of where floor trading is going," said LaBranche. "Obviously people don't have the opinion that that's going to be a growing factor."
Another possible source of growth for LaBranche are areas beyond traditional market making in equities, trading new products like options and exchange traded funds.
But the company said in a quarterly results filing earlier this month that those areas were lower in the third quarter compared to a year earlier.
"Trading businesses are not always predictable," LaBranche said. |
