MF Global returns to profitability

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MF Global, one of the world’s biggest financial derivatives brokerages, returned to profitability during its fiscal first quarter, as it embarked on a shake-up under Jon Corzine, who was appointed chairman and chief executive in late March.

After a run of five unprofitable quarters, MF Global reported a fiscal first-quarter net profit of $0.8m or 1 cent per share, according to generally accepted accounting principles.

That compared with a net loss of $32.8m or 27 cents per share in the same period last year, and a loss of $0.78 per share for the fourth quarter.

Excluding all extraordinary items, MF’s adjusted earnings per fully diluted share were $0.16 for the first quarter, compared with $0.05 for the same period last year.

That exceeded analysts’ estimates of $0.02 in earnings.

Net revenue rose 20 per cent to $289.4m from $240m in the fiscal fourth quarter and was up from $271.5m for the same period last year.

During the earnings call, Mr Corzine, formerly co-head of Goldman Sachs before becoming a US senator and then governor of New Jersey, said MF Global is developing a “one firm culture” and is transitioning from being primarily a broker to that of a broker-dealer that is client driven.

“The mantra is earnings, earnings, earnings,” he said. Under Mr Corzine, the company has moved to broaden its scope by relying less on commission revenues, and seek more opportunities by taking one side of trades with clients.

For the quarter, revenue from principal transactions rose 34 per cent to $66.3m.

Another key aspect of MF Global’s return to profitability was cutting costs and reducing pay.

The workforce fell 12 per cent or some 400 people, with the majority of job cuts made before the quarter closed on June 30.

The ratio of pay to net revenue declined to 53.7 per cent from 63.2 per cent in the prior-year period.

Mr Corzine also said opportunities beckoned as derivatives markets move towards centralised clearing.

He highlighted the recent move to work with BNY Mellon in providing clearing services for the bank’s new futures commission merchant.

The use of FCMs for clearing and trading over-the-counter derivatives is a key part of the Dodd Frank Act.

‘The FCM [business] is very important,” said Mr Corzine.

Greater clearing and transparency in markets would benefit MF Global as it sought to grow, he said.

The company also improved its credit standing during the quarter and in June made a public offering of 22.5m shares at $7.10 per share.

MF Global’s stock closed up 9.1 per cent at $7.30 and back above the pre-share offering level for the first time.

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