LaBranche Will Writedown Specialist Business
By Edgar Ortega
Michael LaBranche, chief executive officer, LaBranche July 9 (Bloomberg) -- LaBranche & Co., the largest specialist firm at the New York Stock Exchange, hired an investment bank to explore options that include selling the 83- year-old company as electronic trading renders market makers on the floor obsolete.
``This is a landmark event,'' said Patrick Healy, a former executive at Bear Stearns Cos.' specialist unit who now heads Issuer Advisory Group LLC in Chevy Chase, Maryland. ``They need to be part of something bigger, like their competitors.''
Chief Executive Officer Michael LaBranche, whose grandfather founded the firm during the 1920s stock boom, failed to counter a slump in revenue as NYSE Euronext CEO John Thain automated much of the work done by floor traders. LaBranche said in a statement today it will post a second-quarter loss because of a ``substantial'' writedown of its specialist business.
The upheaval has spurred rivals including Van der Moolen Holding NV to cut more than a third of its staff on the NYSE floor, while Bear Stearns took a $225 million charge after slashing the value of its specialist unit. LaBranche, which hired New York-investment bank Freeman & Co. Securities LLC and the law firm Weil, Gotshal & Manges LLP, also announced the sale of its business at the American Stock Exchange for an undisclosed sum.
LaBranche may sell part of its NYSE specialist unit, find a buyer for the whole company or go private in a management-led buyout, according to a person with direct knowledge of the plans under consideration.
Declining Numbers
Shares of New York-based LaBranche rose 36 cents, or 4.8 percent, to $7.87 at 4:02 p.m. in NYSE composite trading. The stock has dropped 20 percent for the year, giving the company a market value of around $484 million.
Specialists are required by the NYSE to make orderly markets in the stocks they are assigned, including buying or selling when they can't match orders from other brokers. With the NYSE's new Hybrid Market, floor traders handle about 18 percent of the 1.6 billion shares that change hands daily at the exchange, compared with more than 80 percent at the start of 2006 when the Big Board still restricted automated trading, according to NYSE data.
Fewer than 10 percent of orders were handled through the NYSE's automated Direct+ system when LaBranche first sold its shares to the public in 1999, according to exchange data. Since then, the number of specialist firms has been reduced to seven from 31, with LaBranche remaining as the sole independent publicly traded firm.
`Ton of Experience'
Through June, LaBranche used its own capital to buy or sell about 0.9 percent of the shares traded at the Big Board, according to NYSE data. Floor traders face increasing competition from electronic brokerages that pair off orders in fractions of a second outside of the NYSE, said Jamie Selway, who worked at Nasdaq Stock Market and the Arca electronic exchange before founding White Cap Trading LLC in 2003.
``The function has changed, becoming more about technology and quantitative techniques and LaBranche doesn't have a ton of experience in that,'' Selway said.
Knight Capital Group Inc., which is based in Jersey City, New Jersey, says it handles about 4.8 percent of NYSE-listed shares traded by shuttling orders through electronic markets. Automated Trading Desk LLC, which handles about 6 percent of all U.S. stocks traded, last week agreed to be sold for $680 million to Citigroup Inc., the world's biggest financial services company.
LaBranche made markets in 546 NYSE-listed stocks as of the end of March, including shares of Warren Buffett's Berkshire Hathaway Inc. and Exxon Mobil Corp., the world's largest company by market value. LaBranche handled 89 companies at the American Stock Exchange, a business it sold today to closely held Cohen Specialists LLC.
`Continued Weakening'
Last week, Goldman Sachs Group Inc. said in a regulatory filing that it decided against writing down the value of its NYSE specialist despite ``continued weakening of our operating results.'' The New York-based investment bank cited the exchange's plans to alter trading rules to support the ``floor- based market model'' as a reason for the move.
LaBranche's second-quarter results will also be hurt by a 21 percent decline in value of the company's investment in NYSE Euronext, the exchange's owner. LaBranche holds 3.13 million shares of NYSE Euronext valued at about $239 million, regulatory filings show. Excluding the writedown and investment loss, LaBranche said it would have had a second-quarter profit.
The company has already cut staff by 40 percent over the past three years and expanded into stocks and options in London and Hong Kong.
`No Assurance'
``There can be no assurance that the review will result in any particular strategic or financial transaction or, if it does, what the terms or the timing will be,'' LaBranche said in the statement, adding that it doesn't expect to comment unless and until the review results in a transaction.
Chief Financial Officer Jeffrey A. McCutcheon didn't return a telephone message seeking comment.
Thain said May 1 that traders at the NYSE handle enough shares to merit the floor's current size even as investors increasingly rely on automated markets.
``The exchange already is almost all electronic, but a lot of the electronic trading is the specialists and the brokers on the floor,'' Thain said during a conference at Baruch College in New York. ``They will continue to add value, which means there will continue to be a floor.''
To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net .
Last Updated: July 9, 2007 16:28 EDT |
