Piper Jaffray Asia unit considers management buyout: memo

Thu Jul 26, 2012 1:15am EDT

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(Reuters) - Piper Jaffray Co's (PJC.N) Asia executives may buy over the loss-making unit as the mid-size U.S. investment bank exits the region after six years, according to a note seen by Reuters.

The bank, which is more than a hundred years old, has been hit hard by the global downturn and is joining a long queue of Western banks scaling back operations to cut costs.

Piper Jaffray unveiled on Wednesday plans to leave Asia by the end of September, either through a sale of the business or a shutdown of the unit, as it does not have the financial means to sustain it.

Following that announcement, Alex Ko, the chief executive of Piper Jaffray Asia, had approval to seek out buyers or undertake a management buyout, according to an emailed note to clients.

The bank is currently in discussions with external parties on a sale of the Hong Kong business, the note said.

A shutdown is more likely in the current environment, analysts say.

"At the moment, it will be hard to find a buyer. The bigger investment banks are more established and the smaller, more mid-tier banks are probably generating the exact same losses," Morningstar analyst Michael Wong said.

Calls to a Piper Jaffray spokeswoman after regular U.S. business hours seeking comment on the note went unanswered.

DEALS DIVE

Piper Jaffray, eager to tap into Asian growth, ramped up its presence in the region by buying Hong Kong-based investment bank Goldbond Capital Holdings Ltd in 2007 after setting up a representative office in China a year earlier.

Until last year, the bank had maintained that growing in China was its key strategic priority.

A slump in IPOs and a sharp fall in equity trading volumes since have forced established and new investment banks in the region to trim costs and lay off staff. Many others have left the region entirely.

Samsung Securities shut operations in the region outside Korea a few months ago. Royal Bank of Scotland (RBS.L) is selling most of its Asian equities division to Malaysia's CIMB Group (CIMB.KL), while Credit Agricole (CAGR.PA) is in talks to offload its stake in CLSA. [ID:nL4E8IG1U7]

CLSA, Deutsche Bank (DBKGn.DE), Goldman Sachs (GS.N) and UBS (UBSN.VX) were among the banks that cut jobs just last month.

Piper Jaffray, whose second-quarter net income slumped 36 percent from a year earlier to $6.9 million, expects to realize cash proceeds of between $13 million and $18 million from the exit.

The bank's Asia unit generated a $4 million pre-tax operating loss in the second quarter.

"We believe that the Asia market provides a long-term growth opportunity. However, the current loss run-rate is not acceptable nor can we fund the required investment to build out our platform," Piper Jaffray CEO Andrew S Duff said in a statement.

Piper Jaffray shares rose 5.5 percent on Wednesday to $20.63 on the New York Stock Exchange, compared with 0.2 percent gain in the U.S. banking sub-index .KRX.

(Reporting by Vikram Subhedar, Aman Shah and Jochelle Mendonca in Bangalore; Writing by Denny Thomas; Editing by Supriya Kurane and Ryan Woo)

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