ITG Selling Research Unit as Third-Quarter Revenue Falls 11%

  • Company's sales declined to $120 million in the third quarter
  • Warburg Pincus agrees to buy its energy research group

Investment Technology Group Inc., struggling to recover after paying a record penalty to regulators and replacing its chief executive officer, announced it had found a buyer for its Calgary-based research group as it reported a drop in revenue and profit in the latest quarter.

The New York-based brokerage will sell ITG Investment Research, an energy research group, to private-equity firm Warburg Pincus LLC for $120.5 million in cash, ITG said in a statement. It expects to earn as much as $95 million from the deal, it said.

The company also reported third-quarter earnings Thursday. Sales declined to $120 million in the third quarter, compared with $135 million during the same period a year ago, according to a statement. Revenue still beat the average analyst estimate compiled by Bloomberg of $118 million. ITG’s net income fell 76 percent to $2.7 million as the firm paid legal fees related to the fine.

“Over the course of the quarter, we worked to address the concerns of our clients and to return to normal business conditions,” said Jarrett Lilien, ITG’s interim CEO. “While much work remains to be done, we are pleased with our progress.”

JPMorgan Chase & Co.’s Frank Troise is expected to take over from Lilien in January.

Despite the declines, ITG posted adjusted earnings per share of 12 cents, exceeding the average analyst projection that the firm would lose 7 cents a share, according to data compiled by Bloomberg.

ITG must pay $20.3 million for operating a proprietary trading desk that used knowledge of customers’ requests to trade for its own benefit. The desk leveraged data other users of its dark pool didn’t have, the U.S. Securities and Exchange Commission said in August.

In addition to the settlement, the ITG also had to halt trading in its Posit dark pool for a day in August because of a breakdown in the air-conditioning system at a New Jersey data center.

"Printing a profit in what was expected to be a very challenging quarter post SEC settlement and data center outages in August is a clear positive," Chris Allen, an analyst at Evercore ISI, wrote in a note to clients.

Shares of ITG rose 16 percent to $19.81 at 11:00 a.m. in New York.

Posit suffered from lower trading volumes for U.S. equities. The company reported a 7 percent drop in Posit’s average daily volume, falling to 67 million shares in the third quarter from 72 million shares in the same period a year earlier.

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