August 7, 2012 / 3:26 PM / in 5 years

UPDATE 1-Gleacher posts loss, scurries to save Nasdaq listing

3 Min Read

Aug 7 (Reuters) - Gleacher & Co Inc, the 12-year-old investment bank founded by merger and acquisition veteran Eric Gleacher, is struggling to retain its listing on the Nasdaq Stock Market amid continuing losses and a plummeting stock price.

Gleacher, which in the past year has installed new management, dropped its equities trading unit and pushed to bolster its mortgage banking business, said on Tuesday that it had lost $60.8 million from continuing operations in the second quarter following a $4.7 million loss in the first quarter. In the second quarter of 2011, it had a gain of $1.3 million.

Gleacher shares have traded below $1 since early May, jeopardizing the company's ability to remain listed on the Nasdaq Stock Market.

"We are in discussions with Nasdaq on that particular issue," Chief Executive Officer Thomas Hughes said on a conference call with analysts. "We don't have a solution yet."

Hughes, who joined the company in May 2011, has made major strategic changes to reverse its history of high expenses and low returns. He is now shedding assets to counter the mistaken impression that the company's capital is insufficient to support its inventories of securities, he said.

"When we arrived, we found a cultural problem as well as a math problem," he said on the call. "There is always a cost to a change in direction of a company or a business."

Gleacher's net loss of $60.8 million translated to a loss of 51 cents a share, or a deficit of 6 cents a share on an operating basis that excludes items such as a $21 million writedown of overpayments, known as "goodwill," and a $2.1 million deferred tax valuation gain.

Analysts had forecast an operating loss of 1 cent a share.

"Results were well below our forecasts," JMP Securities analyst David Trone wrote in a note to clients. "The firm's restructuring efforts have yet to yield results that suggest the firm has returned to a path of sustainable profitability."

Shares of Gleacher were down 0.3 percent at 69 cents in morning trading.

The company is winding down its matched book repo activities, a financing operation that Hughes said had not been a significant contributor to earnings but gave the impression that the firm is "overleveraged." Its balance sheet at the end of June fell to about $1 billion from $4 billion three months earlier.

Gleacher's backlog of merger assignments feels "pretty good," Hughes said, but he has been focusing primarily on building fixed-income programs such as trading credit and mortgage products.

Hughes's long-planned attempt to get into the mortgage servicing business through a license or joint venture remains stymied. Changes occurring in the management and operations of Fannie Mae and Freddie Mac, which issue servicing licenses, are delaying negotiations, he said.

Eric Gleacher, who founded the company in 1990, created the mergers and acquisitions department at Lehman Brothers in 1978 and ran global M&A at Morgan Stanley from 1985 to 1990. He is now chairman of his eponymous firm.

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