GFI Chief Sees Energy Trade Fueling Q1 Revenue Growth

Resilient trade in energy markets will help GFI Group Inc. (GFIG) boost revenues by 4% to 7% in the first quarter of 2010 as the brokerage company works to diversify, its top executive said Friday.

Chief Executive Officer Michael Gooch also highlighted signs of a revival in GFI's core credit derivatives business, as the company reported a net loss of $14.5 million for the fourth quarter of 2009, below analysts' expectations.

"The worst is behind us, though we still expect a choppy year in terms of asset allocations and trading activity," Gooch said on a conference call Friday.

New York-based GFI, which facilitates trading between banks, hedge funds and other institutions across a variety of markets, late Thursday reported total revenues of $185.6 million for the quarter, down 5.4% from the prior-year period as brokerage revenue shrank.

Non-GAAP net income was $4.5 million or 4 cents per share, compared to expectations of 5 cents per share, according to a Thomson Reuters survey of analysts.

GFI shares were up 11.2% in early trade Friday at $5.05.

Gooch on Friday outlined GFI's efforts to move past the financial crisis and its fallout, which dented the trading activity of some customers and put others out of business altogether.

The company has sought to broaden its business, and Gooch on Friday pointed to 30% year-on-year growth in European power and natural gas derivatives trading in recent days.

Energy trading volumes have generally remained robust throughout the past quarter, while exchanges have reported continued lower levels of activity in financial derivatives product groups.

Commodities trade also carries a more diverse customer base than some of GFI's other product groups, Gooch said, drawing in hedge funds and algorithm-driven trading operations that prefer centrally cleared instruments.

Fears focused on the sovereign debt of European nations such as Greece boosted GFI's credit derivatives business by 35% year-on-year in January, Gooch said. That business was particularly hard-hit by big banks' deleveraging in late 2008, but it continues to make up 12% of GFI's revenue and Gooch on Friday noted "general improvement across the board."

The growth of clearinghouses set up to handle credit default swap transactions, backed by exchange operators like IntercontinentalExchange Inc. (ICE) and CME Group Inc. (CME), has helped trading activity rebound in the $25.5 trillion market, Gooch said.

Increased competition among clearinghouses is a good thing, according to Gooch, driving costs lower for customers and potentially increasing the rebates earned by brokers like GFI that direct order flow.

Gooch said he anticipates GFI's revenues will continue to grow throughout 2010 and the company may look to put capital to work via "bite-size" acquisitions, potentially in the fixed-income business, as GFI looks to compete with larger rivals.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

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