UPDATE 1-GFI Group shares plunge on Q3 loss, lower outlook
(Adds analysts' comments, background; updates share movement)
By Ratul Ray Chaudhuri
BANGALORE, Oct 31 (Reuters) - GFI Group Inc's (GFIG.O) shares plunged as much as 28 percent Friday, to a 52-week low, after the inter-dealer broker posted a quarterly loss, forecast lower fourth-quarter revenue and cut jobs.
GFI Group's Chief Executive Michael Gooch said in a conference call that the company is an attractive merger target, given that the shares were trading below their book value.
In September, GFI's merger talks with rival Tullett Prebon PLC (TLPR.L) had ended over monetary terms.
The company, whose stock has plunged about 85 percent so far this year, said any deal was unlikely to happen before six to nine months due to the ongoing credit crisis.
Analysts expect consolidation in the inter-dealer broker (IDB) space if revenue streams get considerably squeezed due to de-leveraging and consolidation among dealers.
"We are best served by waiting to see how some of the other companies that we would be interested in merging with, shake out in this difficult environment, especially if they have got issues with debt on the balance sheet," Chief Executive Michael Gooch said in the call.
On Thursday, GFI Group posted a quarterly loss, hurt by a decrease in brokerage revenue and higher expenses, and said it cut 55 jobs as part of a restructuring initiative. [ID:nBNG23297]
DIFFICULT ENVIRONMENT
"GFIG's volumes continue to be impacted by hedge fund de-leveraging, Wall Street consolidation and the loss of key credit broker personnel," said Citigroup analyst Donald Fandetti in a note to clients.
Fandetti also said that the stock is weighed by the likely shift of OTC derivatives to the exchanges, highlighted by IntercontinentalExchange's (ICE.N) announcement to acquire The Clearing Corp for credit derivative central clearing. [ID:nN29494622]
"It may take time, but once the current deleveraging environment completes its cycle I expect trading activity to grow across our markets and GFI's investment in technology will position us to benefit tremendously," Gooch said in the call.
Jefferies & Co Inc analyst Daniel Fannon said GFI had anticipated the shift toward a more transparent and standardized CDS market for some time.
"The proliferation of electronically traded credit derivatives has been underway in Europe for some time, while the U.S. has been slower to adopt this trend. GFIG has been ahead of many of its peers in developing the technology to process trades electronically," Fannon said in a note to clients.
Shares of the company touched $2.60, before recouping some of their losses to trade down 43 cents to $3.16 in Friday afternoon trade on the Nasdaq. (Editing by Amitha Rajan, Dinesh Nair)
