Thevolatility that plagued equity markets for much of the fourth quarter of 2015continued into the first quarter of the new year, discouraging M&A andcapital markets activity and lowering analysts' expectations for mostbroker/dealers' earnings.
Marchbrought some relief to the quarter, Credit Suisse analysts said in an April 1note, but that improvement came from a low base. On the whole, investmentbanking fees "declined markedly," they wrote, including a 47%decrease in equity underwriting volumes year over year, and a 23% drop inM&A-related fees compared with the prior-year period.
Serraolowered his price target for Greenhill to $18 from $24 and swung his quarterlyestimate to a loss of 5 cents per share from a gain of 24 cents per share. Healso lowered EPS estimates for Evercore, Lazard Ltd and
Greenhill'sstock has plunged since summer 2015, losing half its value during that time. Itclosed at $19.49 on April 19, near its 2004 IPO price of $17.50 and well offthe all-time high of more than $95 it achieved back in October 2009. Thedifficult first quarter raises "another question mark over strategy andthe future of the firm," Serrao wrote.
Acut to the Greenhill's dividend may be in order, since it is significantlyhigher than those of its peers, Serrao said. Greenhill's cash position is alsopressured by debt service related to its acquisition of Cogent Partners, which will total $16.9 million in 2016,according to Credit Suisse. Goldman Sachs analyst Daniel Paris has alsoquestioned the sizeof the current dividend.
Forsome brokers that rely more on trade execution, volatility helped drive upbusiness. Investment TechnologyGroup Inc. saw average daily trading volumes rise 30% from theprevious quarter, Sandler O'Neill + Partners analyst Richard Repetto wrote inan April 13 earnings preview report. The broker's market share rose steadilyduring the quarter as it moved to rebuild customer relationships damaged byregulatory action, Repetto said. In August 2015, it reached a with the SEC over itsproprietary trading pilot program, which operated for 16 months in 2010 through2011. ITG paid a civil penalty of $18 million.
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High-frequencytrading firm Virtu FinancialInc.
, anotherhigh-frequency-focused broker, could see revenue from market-making services inthe U.S. jump 31% quarter over quarter on higher trading volumes, Repettowrote. The Sandler analyst expects revenue to be flat compared with the firstquarter of 2015. Expenses will likely rise with revenue, though, and managementhas said controlling costs is its top priority.
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Therule, which was releasedon April 6, may not be as punishing for retail brokers like LPL as the industryfeared at first. The final rule includes a grandfathering provision that allowsassets already under management to continue earning fees, as long as thoseaccounts meet the best interest rule, Keefe Bruyette & Woods analyst
"However, while brokers are permitted to generatecommission and fees from their historical business
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