--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 firstname.lastname@example.org
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(END) Dow Jones Newswires
July 25, 2012 11:36 ET (15:36 GMT)
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