Oppenheimer Holdings Inc. - Fourth Quarter 2012 Earnings

Fri Feb 1, 2013 8:00am EST

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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 29th  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 $65.9million 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 $222.7million 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 millioncompared to  $513.4
millionat  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.

A.G. Lowenthal 212 668-8000 or  E.K. Roberts 416 322-1515

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