Cowen Group, Inc. Announces 2012 Fourth Quarter and Full Year Financial Results

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Cowen Group, Inc. Announces 2012 Fourth Quarter and Full Year Financial Results

NEW YORK--(BUSINESS WIRE)-- Cowen Group, Inc. (NAS: COWN) ("Cowen" or "the Company") today announced its operating results for the fourth quarter and full year ended December 31, 2012.

2012 Fourth Quarter and Full Year Highlights(1)

  • Total revenue for the fourth quarter and full year was the highest since the Cowen / Ramius business combination in 2009. For the fourth quarter, revenue was $77.2 million, compared to $70.9 million in the fourth quarter of 2011. For the full year, total revenue was $288.6 million and compared to $270.2 million in 2011.
  • The broker-dealer segment revenue rose 18% year over year in the fourth quarter of 2012 to $45.6 million(2). For the full year 2012, broker-dealer segment revenue increased to $175.8 million(2), up 11% from 2011.
    • Investment banking revenue increased 90% in the fourth quarter to $21.2 million and 41% to $71.8 million for the full year. The increase in both periods was primarily attributable to our equity underwriting activity in the healthcare sector and debt capital markets transactions.
    • Brokerage revenue was $22.4 million in the fourth quarter, which represented a 3% increase year over year. For the full year, brokerage revenue was $93.9 million, down $5.7 million compared to 2011.
  • Management fees at Ramius rose 7% sequentially to $14.3 million in the fourth quarter of 2012. After adjusting for cumulative retrospective management fees in our healthcare royalty funds recognized in 2011, fourth quarter 2012 management fees were unchanged from the prior year period and declined 1% to $56.4 million for the full year 2012.
  • Incentive income was $6.9 million in the fourth quarter, compared to $0.1 million in the prior year period. Full year 2012 incentive income was $15.2 million, a 47% increase over 2011. The increase in both periods is primarily driven by an increase in performance fees from our fund products.
  • Assets under management at January 1, 2013 were $8.1 billion, which remained relatively constant during the 2012 fourth quarter and decreased 2% for the year after adjusting for the disposition of cash management assets under management which occurred during the fourth quarter of 2012.
  • For the full year 2012, total expenses declined by $29.7 million from 2011, in line with our expense reduction targets for 2012.
  • In December 2012, Michael Singer joined Ramius as CEO, bringing a strong and diverse background in alternative asset management.
  • On February 1st, Cowen announced its entry into a definitive agreement to acquire Dahlman Rose & Co., a privately held investment bank specializing in the energy, metals and mining, transportation, chemicals and agriculture sectors.

____________________________________________________________________________________________________

(1) All financial highlights are presented on an Economic Income basis.
(2) Includes broker-dealer segment's allocation of Investment Income (Loss) and Other Revenue.

Peter A. Cohen, Chairman and CEO of Cowen Group said, "In 2012, we continued to make solid progress across our businesses, but we still have work to do. At Cowen and Company, our banking and capital markets business reported a record quarter and year since the Cowen / Ramius business combination. In addition to strong organic growth from focused execution, we also expanded our brokerage business to include electronic trading and securities lending through acquisitions. With an increase in revenue, we reduced our expense structure by approximately $30 million last year, which was in line with our previously stated expense reduction target."

"We expect to close on the Dahlman Rose acquisition during the first quarter, subject to regulatory approvals. This transaction will expand our reach into important new verticals of energy, metals and mining, transportation, chemicals and agriculture. In addition, this transaction will leverage our existing fixed cost structure. We have been working diligently on our integration plan such that we can hit the ground running immediately following closing."

"At Ramius, we continued to have solid investment performance across our various strategies in the fourth quarter and for all of 2012. The firm now offers six distinctive investment capabilities that include real estate, healthcare royalties, US small cap value creation, global long/short credit, managed futures and a sophisticated alternative solutions capability covering beta replication, hedging strategies, alternative risk premia and fund of funds. We continue to incubate new teams and evaluate additional strategies but our existing products are well poised to raise additional assets as we enter 2013. Under the leadership of Michael Singer, who was appointed CEO in December 2012, Ramius has a great opportunity to grow as more institutions and individuals allocate capital to alternatives."

2012 Fourth Quarter and Full Year GAAP Financial Information and Select Balance Sheet Data

For the fourth quarter 2012, the Company reported a GAAP net loss of $9.3 million, or $(0.08) per share, as compared to a GAAP net loss of $79.9 million, or $(0.70) per share, in the fourth quarter 2011. The fourth quarter 2011 loss included an $18.6 million net loss from discontinued operations related to exiting the businesses operated by LaBranche subsidiaries. The year-over-year decrease in GAAP net loss from continuing operations was primarily due to an increase in revenues and a decrease in expenses.

For the full year 2012, the Company reported a GAAP net loss of $23.9 million, or $(0.21) per share, compared to a GAAP net loss of $108.0 million, or $(1.13) per share in the prior year. The full year 2011 loss included a $23.6 million net loss from discontinued operations related to exiting the businesses operated by LaBranche subsidiaries. The decrease in GAAP net loss was primarily due to lower expenses and an improvement in revenue.

The following table summarizes the Company's GAAP financial results for the three months ended December 31, 2012 and 2011, and September 30, 2012; and the twelve months ended December 31, 2012 and 2011.

Summary GAAP Financial Information

(Dollar amounts in millions, except per share information) Three Months Ended   Twelve Months Ended 
December 31,     Sept 30,   December 31,   

 

2012  2011%2012%2012   2011%
 
Revenues$65.9$50.431%$57.614%$240.5$235.32%
Expenses(93.7)(131.2)(29)%(79.1)18%(326.9)(375.7)(13)%
Other income (loss)19.520.4(5)%10.095%62.941.851%
Income tax benefit (expense) 2.4 NM(0.2)NM(0.4)20.1 NM
Net income (loss) from continuing operations$(8.2)$(58.0)NM$(11.6)NM$(24.0)$(78.5)NM
 
Net income (loss) from discontinued operations, net of tax(18.6)NMNM(23.6)NM
Net income (loss) loss attributable to noncontrolling interests in consolidated subsidiaries1.2 3.4 NM(1.0)NM(0.1)5.8 NM
Net income (loss) attributable to Cowen Group, Inc.$(9.3)$(79.9)NM$(10.6)NM$(23.9)$(108.0)NM
 
Earnings (loss) per basic share:
Income (loss) from continuing operations$(0.08)$(0.53)NM$(0.09)NM$(0.21)$(0.88)NM
Income (loss) from discontinued operations$0.00$(0.16)NM$NM$0.00$(0.25)NM

Note: Amounts may not add due to rounding.

 

The Company's stockholders' equity as of December 31, 2012, was $495.1 million, or book value per share of $4.40, compared to stockholders' equity of $508.5 million, or book value per share of $4.46, as of December 31, 2011. At December 31, 2012, the Company's tangible book value per share was $4.04 compared to $4.23 at December 31, 2011.

Select Balance Sheet Data

(Dollar amounts in millions, except per share information)   December 31,   September 30,   December 31,
201220122011
Stockholders' equity$495.1$504.0$508.5
Tangible stockholders' equity$453.6$466.1$482.7
Common shares outstanding112.4114.0114.0
 
Book value per share$4.40$4.42$4.46
Tangible book value per share$4.04$4.09$4.23
 

Economic Income (Loss)

Throughout the remainder of this press release the Company presents Economic Income financial measures that are not prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds, (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction, (iii) excludes certain other acquisition-related and/or reorganization expenses (including the discontinued operations of LaBranche), (iv) excludes goodwill impairment and (v) excludes the bargain purchase gain which resulted from the LaBranche acquisition. In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities and the Company's investment in the Value and Opportunity business. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

For a more complete description of Economic Income (Loss) and a reconciliation of GAAP net income (loss) to Economic Income (Loss) for the periods presented and additional information regarding the reconciling adjustments, please see the "Non-GAAP Financial Measures" section of this press release.

The table below summarizes the Company's Economic Income financial results for the three months ended December 31, 2012 and 2011, and September 30, 2012; and the twelve months ended December 31, 2012 and 2011.

Summary Economic Income (Loss) Financial Information

(Dollar amounts in millions, except per share information) Three Months Ended    Twelve Months Ended 
December 31,      Sept 30,   December 31,   
2012   2011%2012%2012   2011%
 
Revenues$77.2$70.99%$66.017%$288.6$270.27%
Expenses(86.4)(105.8)(18)%(74.6)16%(306.0)(335.6)(9)%
Net Economic Income (Loss) before non-controlling interests(9.2)(35.0)NM(8.6)NM(17.3)(65.4)NM
Economic Income (Loss)$(8.5)$(38.3)NM$(8.9)NM$(17.6)$(71.4)NM
 
Economic Income (Loss) per share$(0.07)$(0.33)NM$(0.08)NM$(0.15)$(0.75)NM
 
Economic Income (Loss) excluding certain non-cash items$(2.3)$(30.3)NM$(0.8)NM$11.7 $(44.0)NM

Note: Amounts may not add due to rounding.

 

2012 Fourth Quarter and Full-Year Economic Income Review

Total Economic Income Revenue

Total Economic Income Revenue for the fourth quarter 2012 was $77.2 million, a 9% increase compared to $70.9 million in the fourth quarter 2011. The increase in Economic Income revenue was primarily the result of an increase in investment banking revenue and incentive income, partially offset by a decrease in management fees and investment income.

For the 2012 full year, total Economic Income Revenue increased by 7% to $288.6 million from $270.2 million in 2011. The increase was primarily the result of an increase in investment banking revenue, investment income and incentive income, partially offset by a decrease in management fees and brokerage revenue.

Economic Income Revenue

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     Three Months Ended      Twelve Months Ended 
December 31,          Sept 30,     December 31,     
(Dollar amounts in millions)2012