--Piper Jaffray to exit Hong Kong capital-markets business by
selling or shutting down the unit
--Firm expects to realize a $13 million to $18 million in net
cash proceeds from the exit
--The move "will remove a substantial drag on earnings," analyst
says
(Adds information on Hong Kong business exit, comments from CEO
and analyst throughout.)
By Brett Philbin
Piper Jaffray Cos. (PJC) said Wednesday it would close its Hong
Kong business as mounting losses from the mid-sized brokerage's
Asia operations contributed to a 36% plunge in its second-quarter
profit.
Piper Jaffray said it would sell or shutter by Sept. 30 its Hong
Kong capital-markets unit. The business, in which the company buys
and sells securities for clients, generated an after-tax loss of
$3.9 million , or 21 cents a share, during the period ended June
30.
The firm said it expects to realize $13 million to $18 million
in net cash proceeds from its exit of the business, primarily
related to a U.S. tax benefit.
"Losses through the second quarter, year-to-date and in 2011 [in
the Hong Kong business] have been significant," said Piper Jaffray
Chairman and Chief Executive Andrew Duff on a conference call with
analysts.
In 2011 alone, the firm posted a $10.9 million loss from its
Asian operations as high market volatility and concerns about the
global economy weighed on Piper Jaffray's ability to establish a
strong foothold in the region.
Big banks, such as Goldman Sachs Group Inc. (GS) and Morgan
Stanley (MS), as well as smaller players such as Renaissance
Capital Group Inc. (RNCG) and Asia-focused CLSA Asia-Pacific
Capital Markets have all trimmed staffs in Asia, cutbacks that
reflect somewhat tempered expectations for a market in which they
had more immediate, higher hopes.
During the conference call, Mr. Duff said his firm "doesn't have
the financial resources to build out the business [in Hong Kong] to
a more sustainable platform." He said, however, that Asia presented
a long-term growth opportunity.
The Minneapolis company posted a profit of $6.85 million, or 37
cents a share, down from a year-earlier profit of $10.7 million, or
55 cents a share. Investment-banking revenue fell 25% from a year
earlier to $50.3 million. Piper Jaffray's institutional brokerage
and asset-management businesses also sagged.
Sandler O'Neill + Partners analyst Devin Ryan said the decision
to close the Hong Kong operations "will remove a substantial drag
on earnings," although it was "a little bit of a black eye for
Piper Jaffray."
Shares of Piper Jaffray climbed 5% to $20.54. The stock though,
has fallen 35% over the past 12 months.
On the call, Duff said the Hong Kong exit will allow the firm to
"significantly reduce risk, immediately improve our financial
performance" and allow the company to focus on higher-margin,
higher-return businesses, such as asset management, public finance
and corporate advisory.
Like its larger Wall Street peers, Piper Jaffray has faced
choppy demand for investment-banking transactions in recent
quarters as clients have pulled back their activities amid economic
turmoil.
--Saabira Chaudhuri contributed to this report.
Write to Brett Philbin at brett.philbin@dowjones.com
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