Oppenheimer Holdings Announces First Quarter 2008 Earnings, Dividend Declaration and $20 million Debt Repayment
April 30 2008 - 9:15AM
PR Newswire (US)
OPY on the NYSE TORONTO and NEW YORK, April 30
/PRNewswire-FirstCall/ -- Quarter ended March 31, Expressed in
thousands of U.S. dollars, except share and per share amounts
2008(1) 2007
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Unaudited Revenue $231,875 $214,116 Expenses $258,664 $185,934
Profit (loss) before taxes $(26,789) $28,182 Net profit (loss)
$(16,115) $16,790 Basic earnings per share $(1.19) $1.28 Diluted
earnings per share $(1.19) $1.26 Book value per share $32.70 $28.90
Basic weighted average number of shares outstanding 13,563,192
13,114,460 Actual number of Class A non-voting and Class B voting
shares outstanding 13,613,288 13,178,379 (1) Results for the three
months ended March 31, 2008 were impacted by the closing of the
CIBC Capital Markets transaction with revenue falling substantially
below targeted levels for the combined businesses due to a
significant reduction in investment banking activity and
acquisition related expenses including: - accrued expenses of $15.4
million ($0.68 per share after tax) for future payments of deferred
incentive compensation to former CIBC employees for awards made by
CIBC prior to the January 14, 2008 acquisition by the Company which
will decline to $7.0 million in the fourth quarter 2008 and
continue to significantly decline in subsequent periods, and -
transition service charges of $10.8 million ($0.48 per share after
tax) to be paid to CIBC for interim support of the acquired
business which will terminate upon the transition to Oppenheimer's
platform, which is anticipated in the third quarter of 2008,
resulting in substantially reduced costs Excluding these expenses,
the loss before taxes for the first quarter of 2008 would have been
$589 thousand ($0.03 per share after tax). The Company recorded a
net loss for the three months ended March 31, 2008 of $16.1 million
or ($1.19) per share compared to net profit of $16.8 million or
$1.28 per share in the same period of 2007. Revenue for the three
months ended March 31, 2008 was $231.9 million compared to $214.1
million for the same period in 2007, an increase of 8%. "We are
very disappointed by our performance for the first quarter of 2008;
however we remain confident in the long term success of our recent
acquisition. The unprecedented downturn in the credit markets
substantially impacted our performance, as did acquisition-related
costs. As previously reported, the Company borrowed $100 million
from CIBC which it has loaned to Oppenheimer & Co. (Opco), the
Company's wholly-owned broker-dealer subsidiary, as a subordinated
loan and which forms part of Opco's regulatory capital. The capital
raised as part of this transaction will permit the Company the time
and capital adequacy to absorb the newly acquired businesses and
makes it highly unlikely that the Company will be required to
return to the capital markets for additional capital despite the
turbulent market environment and the decline in revenues associated
with it. The opportunities for our business are substantial and we
will continue to manage our business for the long term," said
Albert G. Lowenthal, Chairman. As previously reported, the Company
acquired a major part of CIBC World Markets' U.S. Capital Markets
Businesses on January 14, 2008, including U.S. Investment Banking,
Corporate Syndicate, Institutional Sales and Trading, Equity
Research, Options Trading, Convertible Bond Trading, Loan
Syndication, High Yield Origination and Trading as well as related
Israeli equities business. Per the terms of the purchase agreement,
the results of the newly acquired businesses for the period January
1, 2008 to January 14, 2008 were transferred and assumed by the
Company. The newly acquired businesses (including expenses related
to businesses to be acquired in the UK and Asia) along with the
Company's existing Investment Banking, Corporate Syndicate,
Institutional Sales and Trading and Equities Research divisions
were combined to form the Oppenheimer Investment Banking Division
(OIB Division) within the Capital Markets business segment (see
segment disclosure for results by major business segment attached
hereto as an appendix). Revenues for the OIB Division,
approximately $56.7 million during the three month period ended
March 31, 2008, were drastically lower compared to the expected
contributions from the newly acquired businesses primarily as a
result of recent developments in the credit markets which
significantly reduced investment banking activity. Investment
banking revenues in the three months ended March 31, 2008 decreased
31% compared with the Company's existing business during the same
period of 2007. As previously reported, the results of the OIB
Division will be tracked for the five years following the
acquisition for purposes of determining payments due to CIBC as
part of the purchase price. Commissions for the three months ended
March 31, 2008 increased by 42% compared to the same period in 2007
primarily as a result of the newly acquired businesses. Commission
revenues associated with the OIB Division's institutional equities
business increased almost three-fold when compared to the Company's
existing institutional equities business during the same period a
year ago. Commissions generated by the Company's private client
business segment increased 3% during the three months ended March
31, 2008 compared to the same period of 2007. Interest revenue for
the Company declined 38% in the three months ended March 31, 2008
compared to the same period of 2007 as a result of lower interest
rates and reduced levels of margin borrowing. Principal transaction
revenues increased by 16% in the three months ended March 31, 2008
compared to the same period in the prior year (with virtually all
of the increase generated by the newly acquired businesses) but did
not reach anticipated levels because of market volatility and a
widening of credit spreads. Advisory fees for the three months
ended March 31, 2008 increased by 11% compared to the same period
of 2007 primarily as a result of increased fees from external money
market funds and, to a lesser extent, increases in fee-based assets
under management which were $16.5 billion at March 31, 2008 up from
$16.2 billion at March 31, 2007. Included in assets under
management at March 31, 2008 were approximately $12.4 billion in
assets under the Company's traditional fee-based programs ($12.6
billion at March 31, 2007). The impact of new client accounts and
additions to assets under management achieved over the course of
2007 was eroded by declines in market values in the first quarter
of 2008. As reported in the table above, the Company's expenses for
the first quarter of 2008 were significantly and adversely affected
by the newly acquired businesses. In addition to the $15.4 million
in accrued expenses related to deferred incentive compensation and
the $10.8 million in transition service charges (included in other
expenses), salaried compensation expense increased approximately
$12 million during the quarter as a result of the net addition of
more than 500 people associated with the newly acquired businesses.
Total compensation expense for the period was $172.4 million
compared with $124.6 million for the prior period representing an
increase of 38%. Clearance and exchange fees increased over 116%
due to increased transaction volumes from the newly acquired
businesses as well as costs associated with operating the OIB
Division on CIBC's platform (approximately $2.8 million for the
quarter which is included in the $10.8 million in transition
service charges). Transition service charges are expected to
terminate during the third quarter of 2008. Communications and
technology costs increased 26% from period to period with much of
it attributed to market data costs associated with the newly
acquired businesses. Increases in occupancy and equipment costs of
36% were affected by additional real estate costs of $4.6 million
related to the OIB Division. Interest expenses decreased $2.7
million during the quarter ended March 31, 2008 due to lower
interest rates partially offset by interest costs associated with
the $100 million subordinated loan provided by CIBC to facilitate
the operating capital requirements of the newly acquired
businesses. Other expenses were up sharply due to the
aforementioned transition service charges. Deteriorating economic
indicators in the first quarter of 2008 point to the U.S. economy
approaching recession. Dramatic intervention by the U.S. Federal
Reserve has provided liquidity to the credit markets and restored
the ability of banks to access capital to offset recent losses due
to asset write-downs. However, a recovery in economic conditions
will be prolonged by continued deterioration in the housing market
and high oil and food prices. Volatile markets, a deteriorating
U.S. dollar, and ongoing credit concerns have impacted consumer and
investor confidence and markets are likely to continue to be
erratic for some time to come. On April 28, 2008, the Company
repaid $20.0 million of its senior secured credit note, thereby
reducing its outstanding indebtedness under the senior secured
credit note to $63.1 million. Of the $20.0 million pay down, $16.3
million was a required payment under the terms of the senior
secured credit note and $3.7 million represents a voluntary
prepayment. At March 31, 2008, shareholders' equity was
approximately $445 million and book value per share was $32.70
compared to shareholders' equity of $381 million and book value per
share of $28.90 at March 31, 2007. The weighted average number of
Class A non-voting and Class B shares outstanding at March 31, 2008
was 13,563,192 compared to 13,114,460 outstanding at March 31,
2007, an increase of approximately 3% due to the issuance of Class
A Shares to employees pursuant to employee stock-based
arrangements. During the first quarter of 2008, the Company did not
purchase any Class A Shares pursuant to its Normal Course Issuer
Bid (which commenced on August 14, 2007, and terminates on August
13, 2008). The diluted weighted average number of Class A
non-voting and Class B shares outstanding for the three months
ended March 31, 2008 was 13,563,192 compared to 13,331,445
outstanding for the three months ended March 31, 2007. The Company
announced today a quarterly dividend in the amount of U.S. $0.11
per share, payable on May 30, 2008 to holders of Class A non-voting
and Class B shares of record on May 16, 2008. Oppenheimer, through
its principal subsidiaries, Oppenheimer & Co. Inc. (a U.S.
broker-dealer) and Oppenheimer Asset Management Inc., offers a wide
range of investment banking, securities, investment management and
wealth management services from 86 offices in 21 states and through
local broker-dealers in 3 foreign jurisdictions. OPY Credit Corp, a
newly formed subsidiary offers syndication as well as trading of
issued corporate loans. Oppenheimer employs over 3,500 people,
approximately 1,259 of whom are financial advisers. Oppenheimer
offers trust and estate services through Oppenheimer Trust Company.
Evanston Financial Corporation is engaged in mortgage brokerage and
servicing. In addition, through its subsidiary, Freedom
Investments, Inc. and the BUYandHOLD division of Freedom,
Oppenheimer offers online discount brokerage and dollar-based
investing services. This press release includes certain
"forward-looking statements" relating to anticipated future
performance. For a discussion of the factors that could cause
future performance to be different than anticipated, reference is
made to the Company's Annual Report on Form 10-K for the year ended
December 31, 2007. Appendix: Segment Information
----------------------------- The table below presents information
about the reported revenue and operating income (loss) of the
Company's business segments for the quarters ended March 31, 2008
and March 31, 2007. Expressed in thousands of U.S. dollars Quarter
ended March 31, Presented in accordance with U.S. generally
accepted accounting principles (unaudited) 2008(1) 2007
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Revenues: Private Client $146,496 $158,565 Capital Markets 66,660
36,766 Asset Management 17,522 15,644 Other 1,197 3,141
-------------------------- Total $231,875 $214,116 Operating Income
(Loss): Private Client $12,238 $22,136 Capital Markets (39,126)
5,242 Asset Management 2,939 1,642 Other (2,840) (838)
-------------------------- Total ($26,789) $28,182 (1) Results for
the three months ended March 31, 2008 were impacted by the closing
of the CIBC Capital Markets transaction with revenue falling
substantially below targeted levels for the combined businesses due
to a significant reduction in investment banking activity and
acquisition related expenses including: - accrued expenses of $15.4
million ($0.68 per share after tax) for future payments of deferred
incentive compensation to former CIBC employees for awards made by
CIBC prior to the January 14, 2008 acquisition by the Company which
will decline to $7.0 million in the fourth quarter 2008 and
continue to significantly decline in subsequent periods, and -
transition service charges of $10.8 million ($0.48 per share after
tax) to be paid to CIBC for interim support of the acquired
businesses which will terminate upon the transition to
Oppenheimer's platform which is anticipated in the third quarter of
2008 resulting in substantially reduced costs Excluding these
expenses, the loss before taxes for the first quarter of 2008 would
have been $589 thousand ($0.03 per share after tax). DATASOURCE:
Oppenheimer Holdings Inc. CONTACT: A.G. LOWENTHAL, (212) 668-8000
or E.K. ROBERTS, (416) 322-1515
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