MF Global Earns First Profit Since 2008 on Job Cuts

MF Global Holdings Ltd., the futures and options broker headed by former New Jersey Governor Jon Corzine, reported its first profit in six quarters as it cut pay and eliminated jobs. The shares rose the most since March.

Net income was $8.8 million, or 1 cent a share, in the fiscal first quarter ended in June, compared with a net loss of $25.2 million, or 27 cents, a year earlier, the New York-based company said in a statement. Excluding certain costs, MF Global earned 16 cents. On that basis, it was estimated to earn 2 cents, according to the average estimate of 11 analysts surveyed by Bloomberg. Corzine earlier this year promised investors a return to profitability.

The results “in no way meet our long-term objectives or the firm’s potential,” Corzine, the chief executive officer, said on a conference call with analysts. “Much work remains in the next few quarters.” In May, he called the company’s fiscal 2010 performance “unacceptable” and announced job cuts of as much as 15 percent of its 3,200 workers. So far, 12 percent of the payroll has been eliminated, according to today’s statement.

MF Global, formerly the brokerage unit of Man Group Plc, the world’s largest publicly traded hedge-fund manager, rose 61 cents, or 9.1 percent, to $7.30 in New York Stock Exchange composite trading, the biggest gain since March 24. The stock has climbed 13 percent in the past year.

Previous Profit

The company last recorded a profit in the quarter ended December 2008, reporting net income of $38.7 million, or 23 cents a share.

The percentage of net revenue paid to the firm’s employees, including its brokers, was 53.7 percent in the quarter, down from 63.2 percent a year earlier, according to the statement. Corzine has said he plans to lower the compensation ratio to below 50 percent.

Corzine said today those pay reductions have led some traders to leave, without giving more specific information.

“What we have lost in commission revenues have been replaced, for now, in principal transactions,” or money made by MF Global by being on one side of the trade, Corzine said. Revenue from principal transactions rose 34 percent to $66.3 million in the quarter.

“We are transitioning from primarily a broker to a broker- dealer,” Corzine said. To persuade remaining traders to stay with the company, he said “we will offer them greater volume opportunities, greater revenue opportunities for them as long as it’s aligned with the firm.”

Pay Reduction

Corzine said cutting trader compensation was accomplished by “reducing the payout per commission dollar” and the company’s effort to “transition some of our high performers into equity” so that “gets the individual focused on firm-wide results.”

Benchmark interest rates near zero percent have cut into the broker’s interest income, the revenue it receives from client money it holds as collateral for trades on exchanges. A decline in the amount of borrowed money used to trade after the credit crisis has also slowed demand for futures and options.

Revenue rose 13 percent to $569.1 million from $503.3 million, the company said. Compensation and benefit expenses declined 9.5 percent to $155.4 million.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.

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