Evercore Counting on M&A Rebound
Evercore disappointed shareholders last week after posting a net loss of almost $1 million (8 cents per share) for
Q1 2008. This, compared to a profit of $4.2 million (64 cents per share) for the same period last year. The
net loss, came as a surprise to analysts polled by Thomson Financial, who had predicted a
profit of 20 cents per share. All this happened, as
revenue for this investment bank fell about 50% to $44.5 million - again, much lower than analyst forecasts of $59 million in revenue.
In their earnings call last Monday morning,
CFO Robert Walsh, and
CEO and Chairman Roger Altman explained the losses, and gave hope for the future. Altman defended the losses by stating that the company had predicted that the environment in 2008 would be challenging in its 2007 annual results conference call. I do not think this should be surprising to anyone, after seeing one of the largest and oldest investment banks,
Bear Stearns (NYSE:
BSC), eaten up by fellow bank
JPMorgan Chase (NYSE:
JPM). Other investment banks have seen troubles this year as well, as the ripples of the credit crisis remain to be felt across the country.
What needs to be looked into further, is whether or not Walsh and Altman can bring Evercore back once the financial crisis in the U.S. is over. In the 2007 results call, Altman had said the intermediate and long-term outlook for both of Evercore's main businesses,
Mergers & Acquisitions (M&A) and Investing were strong. Well, wasn't he proved wrong? This time around, M&A activity in the U.S has declined this past quarter by more than 50%!
Both the CEO and CFO see this changing. They attribute the decrease in revenue of about 50% to a decline in M&A activity of the same proportion. They both say that as the financial situation in the U.S gets better, that more credit will be available to bring back the M&A activity that we have been used to in the past. They are looking forward to great profits, which they will compensate with stock awards, just like they had done in 2007. The Evercore board just approved a $25 million share repurchase program to help offset the dilution that would occur with these awards. (Explore the controversies surrounding companies commenting on their forward-looking expectations in
Can Earnings Guidance Accurately Predict The Future?)
I must say that I am a bit worried with seeing share
buybacks as earnings decrease. Is this just a ploy to help the
earnings per share metric out? As earnings decrease, companies are able to keep the EPS number steady by reducing the number of
shares outstanding. However, with M&A activity at such a low point in the U.S., I find it hard to believe that Evercore will be turning around anytime soon. In past years M&A activity was such a large amount of their business, so until I see a solid turnaround across the financial sector, and specifically in M&A activity, I will be watching from the sidelines on this one.
Add Your Two Cents
What do you think will happen with Evercore going forward? Will M&A activity rebound, and bring Evercore with it, just as Altman predicts? Be sure to join me (
aytonmm) in the
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