Piper Jaffray Companies (NYSE:PJC) CEO Andrew Duff said the Minneapolis, Minn.-based investment bank continues to hold a cautious view on the first half of 2008. Duff made the comments during a morning conference call.
“Our outlook has not changed. We believe the weakness in the first quarter activity levels will carry through the second quarter,” Duff said. “That said, we remain focused on our long-term strategy and growth objectives.”
The chief executive said Piper Jaffray intends to benefit from the market turmoil
“We also intend to seize opportunities presented by the market downturn, including selectively hiring talent to enhance our franchise that can place us in an even stronger competitive position when the conditions turn more favorable,” Duff said.
In response to an analyst’s question about bringing in new hires, Duff said the current market environment can be particularly favorable because prospective employees can be hired under uncharacteristic terms. While Piper has hired new talent in its telecom, media and biotech segments, Duff said the firm has fired employees involved in investment banking, U.S. equities, high yield products and fixed income sales and trading. Piper Jaffray has been able to bring new hires to the company without paying guaranteed bonuses, he said.
Before Wednesday’s opening, Piper Jaffray reported a first-quarter net loss from continuing operations of $3.4 million, or $0.22 per share. A year earlier, Piper posted net income from continuing operations of $14.7 million, or $0.82 per share. Wall Street analysts, on average, expected earnings of $0.12 per share.
“Clearly, market conditions were very difficult and directly impacted our business,” Duff said. “Our reduced performance was driven by the lowest equity underwriting activity in the industry in the past five years.”
The declines were attributed to a $4.6 million loss in high-yield and structured-product sales. CFO Thomas Schnettler said Piper Jaffray does not expect improvement in the high-yield business in the near term. The firm has liquidated some of its high yield and structured inventories to mitigate exposure to the segment, he said. Duff said Piper has not completely exited the high-yield business.
“The high-yield operating environment continued to be very difficult in the first quarter,” Schnettler said. “Commission revenues declined significantly year-over-year and quarter-over-quarter.”
First quarter net revenue totaled $95.7 million, down 30% from $137 million during the year-ago period. Analysts expected revenue of $95.6 million.
“Equity financing levels were very depressed in the industry, and the lack of revenue in this business was the key contributor to our low revenue performance,” Schnettler said.
Schnettler said Piper Jaffray expects low equity financing performance during the second quarter.