Oppenheimer Holdings Inc. - Fourth Quarter 2012 Earnings
Oppenheimer Holdings Inc. - Fourth Quarter 2012 Earnings
PR Newswire
NEW YORK, Feb. 1, 2013
NYSE - OPY
NEW YORK, Feb. 1, 2013 /PRNewswire/ -
Expressed in thousands of
dollars, Three Months ended Year ended
except per share amounts December 31, December 31,
2012 2011 2012 2011
(unaudited)
Revenue $249,415 $229,438 $952,612 $958,992
Expenses $256,550 $227,387 $953,139 $941,144
Profit before income taxes* $(7,135) $2,051 $(527) $17,848
Income tax provision
(benefit) $(3,768) $(1,908) $324 $5,231
Net profit/(loss)
attributable to Oppenheimer
Holdings Inc. $(3,700) $3,433 $(3,613) $10,316
Basic earnings per share $(0.27) $0.25 $(0.27) $0.76
Diluted earnings per share $(0.27) $0.25 $(0.27) $0.74
Book value per share at
December 31 $36.84 $37.16 $36.84 $37.16
Tangible book value per
share at December 31 $24.38 $24.47 $24.38 $24.47
* includes non-controlling
interest
Business Review
Oppenheimer Holdings Inc. reported a net loss of $3.7 million or $(0.27) per
share for the fourth quarter of 2012 compared to a net profit of $3.4 million
or $0.25 per share in the fourth quarter of 2011. Revenue for the fourth
quarter of 2012 was $249.4 million compared to revenue of $229.4 million in
the fourth quarter of 2011, an increase of 8.7%.
The fourth quarter of 2012 was significantly impacted by the following
matters. On January 31, 2013, a FINRA arbitration panel rendered a decision
in the previously disclosed U.S. Airways case, filed in February 2009,
resulting in an award against the Company's subsidiary, Oppenheimer & Co.
Inc., in the amount of $30 million including interest and costs on a claim of
approximately $140 million (adjusted down from $253 million). The effect of
the award will result in a fourth quarter after-tax charge of $17.9 million.
The Company is extremely disappointed with the decision of the panel and will
pursue its previously filed arbitration against Deutsche Bank covering many of
the issues in this case in an effort to recover the amount of the award plus
all associated costs of the case. Oppenheimer is also currently considering
whether to file a motion to vacate the order.
Oppenheimer Holdings Inc., the ultimate parent of Oppenheimer & Co. Inc., has
contributed capital into Oppenheimer & Co. Inc., the broker-dealer, in an
amount equal to the net after tax effect of the award. Accordingly, the
regulatory capital of Oppenheimer & Co. Inc. will not change as a result of
the award.
Separately, at the end of 2012, all contingencies expired related to five year
contingent consideration issued as part of the Company's acquisition of the
U.S. capital markets division from Canadian Imperial Bank of Commerce in
January 2008. As a result, the Company recorded a non-cash adjustment reducing
occupancy expenses in the amount of $6.8 million, on an after-tax basis.
Also, during the fourth quarter of 2012, the Company recorded after-tax
credits of $1.9 million related to state investment and employment incentives
for investments previously made. The net effect of these three items was an
after-tax charge of $9.2 million for the period.
The fourth quarter of 2012 was also impacted by Superstorm Sandy which
occurred on October 29^th causing the Company to vacate its two principal
offices in downtown Manhattan and displaced 800 of the Company's employees
including substantially all of its capital markets, operations and
headquarters staff for in excess of 30 days. As a result of the dislocation,
the Company received rent abatement credits of $1.7 million for its two
downtown buildings and incurred rent and other costs of approximately $500,000
to accommodate displaced employees.
Net loss for the year ended December 31, 2012 was $3.6 million or $(0.27) per
share compared to net profit of $10.3 million or $0.76 per share in 2011.
Revenue for the year ended December 31, 2012 was $952.6 million, a decrease of
less than 1% compared to $959.0 million in 2011.
Client assets under administration totaled approximately $80.3 billion while
client assets under management in fee-based programs totaled approximately
$20.9 billion at December 31, 2012 ($76.0 billion and $18.6 billion,
respectively, at December 31, 2011).
In commenting on the Company's results, Albert Lowenthal, Chairman, said, "We
are extremely disappointed with the outcome of the U.S. Airways arbitration,
which has been outstanding for a number of years. It has been a significant
ongoing expense and a major distraction for our Company. The award will have
no impact on the regulatory capital of Oppenheimer & Co. Inc., our principal
operating subsidiary, as its holding company has injected an amount equal to
the after-tax effect of the award as additional capital.
As to the most recent quarter, the significant uncertainties presented by a
challenging economic environment, sovereign debt concerns in Europe, a
national election and the U.S. "fiscal cliff" affected financial markets
throughout the year and more importantly investor confidence. While the equity
markets turned in a more than respectable performance, trading volumes were
disappointing as was underwriting activity resulting in lower revenue for the
year.
Our business was impacted by Superstorm Sandy. However, we will never know
the full impact on business due to the displacement of so many of our
employees. We are extremely proud of their performance under adverse
conditions and pleased that there were no issues around our ability to
continue to service our clients in unaffected regions throughout the period.
We were pleased with the performance of our fee-based businesses including
Oppenheimer Asset Management and Oppenheimer Multifamily Housing and
Healthcare Finance, Inc., both of which produced record revenue as did our
fixed income business, both taxable and non-taxable. These strong sectors were
not sufficient, however, to offset the headwinds of low trading volumes in
equities and low transaction volumes in investment banking.
We have seen an upturn in the Company's business in the first few weeks of
2013 and are optimistic about our business going forward."
Highlights of the Company's results for the three and twelve months ended
December 31, 2012 follow:
Revenue and Expenses
Revenue - Fourth Quarter 2012
* Commission revenue was $118.4 million in the fourth quarter of 2012, an
increase of 6.3% compared to $111.3 million in the fourth quarter of
2011, reflecting stronger markets in the fourth quarter of 2012 compared
to the same period in 2011.
* Principal transactions revenue was $13.9 million in the fourth quarter of
2012, a decrease of 7.9% compared to $15.1 million in the fourth quarter
of 2011. An increase of $2.4 million in municipal trading income in the
fourth quarter of 2012 was more than offset by the negative effect in the
valuation adjustment for auction rate securities owned and committed to
purchase from clients of $2.5 million as well as decreases in equity
trading, government and agency trading, repurchase agreements and declines
in the value of the Company's investments compared to the same period in
2011.
* Interest revenue was $15.2 million in the fourth quarter of 2012, an
increase of 15.3% compared to $13.2 million in the fourth quarter of 2011
stemming from a $1.8 million increase in interest from U.S. government and
agencies and reverse repurchase agreements in the fourth quarter of 2012
compared to the same period in 2011.
* Investment banking revenue was $22.8 million in the fourth quarter of
2012, a decrease of 18.0% compared to $27.8 million in the fourth quarter
of 2011 primarily due to a decrease of $11.6 million in revenue from
corporate finance advisory fees partially offset by an increase in revenue
from equity issuances of $4.6 million in the fourth quarter of 2012
compared to the same period in 2011.
* Advisory fees were $65.9 million in the fourth quarter of 2012, an
increase of 37.7% compared to $47.9 million in the fourth quarter of 2011.
Asset management fees increased by $8.0 million in the fourth quarter of
2012 compared to the same period in 2011 as a result of an increase in the
value of assets under management. Asset management fees are calculated
based on client assets under management at the end of the prior quarter
which totaled $21.1 billion at September 30, 2012 ($17.7 billion at
September 30, 2011). Incentive fee income from the Company's general
partner participation in hedge funds increased by $10.0 million in the
fourth quarter of 2012 compared to the same period in 2011. Incentive fee
income is based on the period-end mark-to-market value of the funds.
* Other revenue was $13.1 million in the fourth quarter of 2012, a decrease
of 6.6% compared to $14.1 million in the fourth quarter of 2011 primarily
as a result of a decrease in the fair value of $1.4 million related to
Company-owned life insurance policies underlying the deferred compensation
plans in the fourth quarter of 2012 compared to the same period in 2011.
Revenue - Year-to-date 2012
* Commission revenue was $469.9 million in the year ended December 31, 2012,
a decrease of 4.5% compared to $492.2 million in 2011 due to a lower
volume of business in year ended December 31, 2012 compared to 2011.
* Principal transactions revenue was $54.3 million in the year ended
December 31, 2012, an increase of 14.0% compared to $47.7 million in 2011.
Revenue from equities, corporate bonds, agencies and municipals trading as
well as an increase in the value of the Company's investments added $17.4
million in the year ended December 31, 2012 compared to 2011. These gains
were offset by decreases of $9.6 million in U.S. government and agencies
trading and repurchase agreements as well as the negative effect of the
valuation adjustment for auction rate securities owned and committed to
purchase from clients of $3.1 million.
* Interest revenue was $57.7 million in the year ended December 31, 2012, an
increase of 1.6% compared to $56.8 million in 2011. The increase is
primarily attributable to an increase of $4.8 million increase in interest
from higher holdings of U.S. government and agencies and reverse
repurchase agreements in the year ended December 31, 2012 compared to
2011. This increase was partially offset by a decrease of $3.2 million in
margin and other interest income.
* Investment banking revenue was $89.5 million in the year ended December
31, 2012, a decrease of 24.9% compared to $119.2 million in 2011 primarily
due a decrease of $28.1 million in revenue from corporate finance advisory
fees as well as a decrease in revenue from equity issuances of $2.9
million in 2012 compared to the same period in 2011.
* Advisory fees were $222.7 million in the year ended December 31, 2012, an
increase of 13.0% compared to $197.1 million in 2011. Asset management
fees increased by $17.3 million for the year ended December 31, 2012
compared to 2011 as a result of an increase in the value of assets under
management during the year. Incentive fee income increased by $8.3 million
in the year ended December 31, 2012 compared to 2011.
* Other revenue was $58.6 million in the year ended December 31, 2012, an
increase of 27.2% compared to $46.0 million in 2011 primarily due to an
increase of $5.5 million in the fair value of our Company-owned life
insurance policies that support our deferred compensation plans. In
addition, fees generated by Oppenheimer Multifamily Housing & Healthcare
Finance, Inc. increased $7.1 million in the year ended December 31, 2012
compared to 2011.
Expenses - Fourth Quarter 2012
* Compensation and related expenses were $164.9 million in the fourth
quarter of 2012, an increase of 12.2% compared to $147.0 million in the
fourth quarter of 2011 primarily due to increased production-related
compensation on commissionable business and incentive compensation.
* Clearing and exchange fees were $5.7 million in the fourth quarter of
2012, a decreased of 2.7% compared to $5.9 million in the same period of
2011.
* Communications and technology expenses were $16.0 million in the fourth
quarter of 2012, an increase of 3.1% compared to $15.5 million in the
fourth quarter of 2011 due primarily to an increase in information
technology-related expenses in the fourth quarter of 2012 compared to the
same quarter of 2011.
* Occupancy and equipment costs were $3.5 million in the fourth quarter of
2012, a decrease of 82.7% compared to $20.5 million in the fourth quarter
of 2011. As discussed above, during the period, all contingencies expired
at the end of 2012 related to five year contingent consideration issued as
part of the Company's acquisition of the U.S. capital markets division
from Canadian Imperial Bank of Commerce in January 2008. As a result, the
Company recorded a non-cash adjustment reducing occupancy expenses in the
amount of $11.3 million. The decrease was also due to overlapping rent
expense and write-offs of $2.4 million related to the move of our
corporate headquarters in the fourth quarter of 2011 which were not
applicable in the fourth quarter of 2012. Further, the fourth quarter of
2011 included $2.1 million in amortization relating to the below-market
lease which was not applicable in the fourth quarter of 2012. In
addition, as described above, Superstorm Sandy had an impact on the
Company's operations in New York City. The Company received rent abatement
credits of $1.7 million for its two downtown buildings and incurred rent
and other costs of approximately $500,000 to accommodate displaced
employees.
* Interest expense was $9.2 million in the fourth quarter of 2012, a
decrease of 1.4% compared to $9.4 million in the fourth quarter of 2011.
* Other expenses were $57.2 million in the fourth quarter of 2012, an
increase of 95.7% compared to $29.2 million in the fourth quarter of 2011
due to the outcome of the U.S. Airways arbitration as discussed above.
* During the three month period ended December 31, 2012 the Company recorded
tax credits of $1.9 million (net of Federal taxes) related to state
investment and employment incentives for investments previously made.
Expenses - Year-to-date 2012
* Compensation and related expenses were $626.4 million in the year ended
December 31, 2012, essentially flat compared to $626.8 million in 2011.
* Clearing and exchange fees were $23.8 million in the year ended December
31, 2012, a decrease of 5.0% compared to $25.0 million in 2011 primarily
stemming from a $1.3 million decrease in floor brokerage fees in the year
ended December 31, 2012 compared to 2011. This decrease relates to the
decrease in commission business described above.
* Communications and technology expenses were $63.4 million for the year
ended December 31, 2012, an increase of 1.1% compared to $62.7 million in
2011 due primarily to an increase in information technology-related
expenses in the year ended December 31, 2012 compared to 2011.
* Occupancy and equipment costs were $62.8 million for the year ended
December 31, 2012, a decrease of 17.9% compared to $76.5 million in 2011.
At the end of 2012, all contingencies expired related to five year
contingent consideration issued as part of the Company's acquisition of
the U.S. capital markets division from Canadian Imperial Bank of Commerce
in January 2008. As a result, the Company recorded a non-cash adjustment
reducing occupancy expenses in the amount of $11.3 million.
* Interest expense was $35.1 million in the year ended December 31, 2012, a
decrease of 7.7% compared to $38.0 million in 2011 primarily due to
decreased interest expenses incurred on repurchase agreements held by the
government trading desk for the year ended December 31, 2012 compared to
that of 2011.
* Other expenses were $141.7 million for the year ended December 31, 2012,
an increase of 26.3% compared to $112.2 million in 2011 due to the outcome
of the U.S. Airways arbitration as discussed above.
* During the three months ended June 30, 2012, the Company recorded
adjustments of $1.3 million, net of taxes, related to the prior periods to
establish additional reserves for taxes and adjust related interest.
During the three month period ended December 31, 2012 the Company recorded
tax credits of $1.9 million (net of Federal taxes) related to state
investment and employment incentives for investments previously made.
Stockholders' Equity
* At December 31, 2012, total equity was $505.6 million compared to $513.4
million at December 31, 2011.
* At December 31, 2012, book value per share was $36.84 (compared to $37.16
at December 31, 2011) and tangible book value per share was $24.38
(compared to $24.47 at December 31, 2011).
OPPENHEIMER HOLDINGS INC.
SUMMARY STATEMENT OF OPERATIONS (UNAUDITED)
$ in thousands,
except share
and
per share
amounts
Three Months Ended Year Ended
12/31/12 12/31/11 % Δ 12/31/12 12/31/11 % Δ
REVENUE
Commissions $118,378 $111,316 6.3% $469,865 $492,228 -4.5%
Principal
transactions,
net 13,924 15,123 -7.9% 54,311 47,660 14.0%
Interest 15,200 13,180 15.3% 57,662 56,779 1.6%
Investment
banking 22,830 27,845 -18.0% 89,477 119,202 -24.9%
Advisory fees 65,936 47,897 37.7% 222,732 197,097 13.0%
Other 13,147 14,077 -6.6% 58,565 46,026 27.2%
249,415 229,438 8.7% 952,612 958,992 -0.7%
EXPENSES
Compensation
and related
expenses 164,895 146,965 12.2% 626,411 626,767 -0.1%
Clearing and
exchange fees 5,704 5,864 -2.7% 23,750 24,991 -5.0%
Communications
& technology 16,013 15,527 3.1% 63,359 62,673 1.1%
Occupancy &
equipment costs 3,539 20,462 -82.7% 62,818 76,509 -17.9%
Interest 9,222 9,353 -1.4% 35,086 38,026 -7.7%
Other 57,177 29,216 95.7% 141,715 112,178 26.3%
256,550 227,387 12.8% 953,139 941,144 1.3%
Profit/(loss)
before income
taxes (7,135) 2,051 -447.9% (527) 17,848 -103.0%
Income tax
provision
(benefit) (3,768) (1,908) n/a 324 5,231 -93.8%
Net
profit/(loss)
for the period (3,367) 3,959 -185.0% (851) 12,617 -106.7%
Net profit
attributable to
non-controlling
interest, net
of tax 333 526 -36.7% 2,762 2,301 20.0%
Net
profit/(loss)
attributable to
Oppenheimer
Holdings Inc. $(3,700) $3,433 -207.8% $(3,613) $10,316 -135.0%
Profit/(loss)
per share
attributable to
Oppenheimer
Holdings Inc.
Basic $(0.27) $0.25 $(0.27) $0.76
Diluted $(0.27) $0.25 $(0.27) $0.74
Weighted avg.
shares
outstanding 13,611,271 13,671,917 13,602,205 13,638,087
Actual shares
outstanding 13,607,998 13,671,945 13,607,998 13,671,945
Company Information
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 94 offices in 26 states and through local broker-dealers in 4
foreign jurisdictions. Oppenheimer employs over 3,400 people. The Company
offers trust and estate services through Oppenheimer Trust Company. OPY Credit
Corp. offers syndication as well as trading of issued corporate loans.
Oppenheimer Multifamily Housing & Healthcare Finance, Inc. is engaged in
mortgage brokerage and servicing. In addition, through Freedom Investments,
Inc. and the BUYandHOLD division of Freedom, Oppenheimer offers online
discount brokerage and dollar-based investing services.
Forward-Looking Statements
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 Factors Affecting "Forward-Looking Statements" and Part 1A - Risk Factors
in Oppenheimer's Annual Report on Form 10-K for the year ended December 31,
2011.
SOURCE Oppenheimer Holdings Inc.
Contact:
A.G. Lowenthal 212 668-8000 or E.K. Roberts 416 322-1515
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