Greenhill Shares Rise as Earnings Beat Analysts’ Estimates
July 18, 2011, 12:01 PM EDTBy Laura Marcinek
(Updates with analyst’s comment in the fourth paragraph.)
July 18 (Bloomberg) -- Greenhill & Co., the investment bank founded by Robert Greenhill, climbed in New York trading after second-quarter profit exceeded analysts’ estimates, helped by advisory revenue.
Greenhill rose 48 cents, or 1 percent, to $46.98 in New York Stock Exchange composite trading at 11:35 a.m., after reaching $51 earlier today, the New York-based company’s biggest intraday climb in more than two years.
The gains pared a 12 percent decline on July 15 after the departure of a third managing director since early June at the firm, run by Chief Executive Officer Scott Bok. Greenhill released earnings yesterday after the stock tumble, which was the biggest since the firm’s initial public offering in 2004. Net income climbed 22 percent to $21.5 million from a year earlier, and earnings per share of 69 cents beat the 33-cent average estimate of seven analysts surveyed by Bloomberg.
“Substantially better-than-expected earnings highlight the lumpy nature of Greenhill’s business, but also demonstrates potential as the M&A cycle progresses,” Devin Ryan, an analyst with Sandler O’Neill & Partners LP in New York, said today in an e-mail. Greenhill “will be a significant beneficiary of a rebound in M&A activity over the long-term,” Ryan said.
The shares slid 43 percent this year through last week after the portion of revenue used to pay employees jumped to 75 percent in the first quarter, contributing to the bank’s first loss in 2 1/2 years. That ratio fell to 46 percent in the second quarter, the same level as a year earlier.
Revenue Increase
Revenue for the three months ended June 30 climbed 8.7 percent to $90.8 million, driven by a 38 percent increase in financial advisory fees, the company said.
“We earn a significant portion of our revenue from clients in ways that are not apparent from merger announcements and completions,” Bok said in a statement yesterday. “We are increasingly involved in strategic advisory assignments, fundraising and other activities.”
Timothy M. George, a member of the management committee who has advised on some of the firm’s biggest deals, is taking a job with Hamilton, Bermuda-based Lazard Ltd., two people familiar with the matter said last week. Other departures since the start of last month include banker Alejandro Przygoda and Simon Borrows, chairman of Greenhill & Co. International LLP and founder of the firm’s European operations.
Compensation Ratio
The firm had averaged fewer than one such departure annually since its founding in 1996, Greenhill said last month. The ratio of Greenhill’s compensation to revenue surged in the first quarter after the firm boosted the number of managing directors 63 percent since 2007.
“Our compensation ratio is consistent with the cost level we maintained for our first six years,” Bok said in the statement. That level “was well below that of our peers.”
Robert Greenhill, who formed the mergers and acquisitions department at Morgan Stanley, founded Greenhill after a Wall Street career spanning more than three decades. He joined Morgan Stanley in 1962 and rose to become its president. In 1993, he left to be CEO of Smith Barney Inc.
Greenhill will hold a conference call at 8 a.m. tomorrow, the firm’s first following an earnings release since going public, at the behest of analysts and investors, Jeff Taufield, a Greenhill spokesman, said yesterday in an e-mail.
--Editor: Steve Dickson
To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net
