SWS Group, Inc., a Dallas-based broker-dealer and correspondent clearing firm, said its fiscal fourth-quarter net income fell 57% on impairment to the value of two large stock holdings, foreclosed property expenses at a banking unit and lower clearing and investment banking revenue.
SWS Group, Inc., a Dallas-based broker-dealer and correspondent clearing firm, said its fiscal fourth-quarter net income fell 57% on impairment to the value of two large stock holdings, foreclosed property expenses at a banking unit and lower clearing and investment banking revenue.
The firm, which operates Southwest Securities Inc. of Dallas, said net income for the period ended on June 26 fell to $3.6 million from $8.4 million in the 2008 fourth quarter.
On a per share basis, profit fell 58%, to 13 cents from 31 cents.
For all of fiscal 2009, SWS’s net income declined to $23.6 million, or 87 cents a share, from $31.9 million, or $1.17 a share, in fiscal 2008.
SWS said accounting rules required it to book a loss of 12 cents a share in the quarter as a result of a decline in the market value of NYSE Euronext and U.S. Home Systems, Inc.
It had earlier announced that it would classify the impairment in the stocks’ value as “other than temporary.”
Last year, the firm purchased Beverly Hills, Calif.-based retail brokerage firm M.L. Stern & Co., which was a subsidiary of Pacific Life Insurance Co. of Newport Beach, Calif.
The acquisition contributed to a full-year and quarterly jump in operating expenses as compensation, occupancy and equipment expenses rose, SWS said in a statement.
M.L. Stern contributed $35.2 million of commissions to the firm’s $381.6 million of revenue in fiscal 2009, partially offsetting declines of $4.5 million in commissions from the previous year at Southwest Securities’ private client group and its SWS Financial Services custodial and administration subsidiaries.
Pretax income in the firm’s clearing segment fell 55% for the year to $5.2 million, and 31% to $985,000 for the fourth quarter, due to lower processing volume as well as “the departure of one high-volume trading customer and substantially reduced volume from another,” the company said in statement.
The firm, as of the end of June, offered clearing services to 203 smaller broker-dealers, about flat with 201 correspondent clearing clients one year earlier.
SWS’s institutional fixed-income and principal transaction businesses fueled its biggest gains during the quarter and the year, with pretax income in institutional businesses rising 41% to $63.7 million for the fiscal year, and 17% to $16.6 million for the quarter.
SWS’s institutional fixed-income and principal transaction businesses fueled its biggest gains during the quarter and the year, with pre-tax income in institutional businesses rising 41% to $63.7 million for the fiscal year, and 17% to $16.6 million for the quarter.
Its retail brokerage unit recorded a 70% slide in pre-tax income to $3.6 million for the year and a loss of $1.5 million in the fourth quarter despite keeping total customer assets flat at $11.4 billion. The firm said results were hurt by lower interest rates that cut into spreads on customer deposits and margin balance, significant declines in stock lending and escalating expenses.
Its retail brokerage unit recorded a 70% slide in pre-tax income to $3.6 million for the year and a loss of $1.5 million in the fourth quarter, despite keeping total customer assets flat at $11.4 billion.
Results were hurt by lower interest rates that cut into spreads on customer deposits and margin balances and by rising expenses, the firm said.
The firm took advantage of layoffs at some of its competitors by recruiting experienced advisers and bankers "while they were available," SWS president and chief executive Donald Hultgren said.
But he and other executives said that in the short term the hiring hasn't been offset by revenue because retail investors are still nervous.
"I don't think we've seen the confidence come back," Mr. Hultgren said in a conference call with analysts today. "It's a pretty tough retail market now."
Comparing the hiring binge to "buying straw hats in the wintertime," he said:
"Producers we are bringing onboard are not current producing at historical levels. But we're going to be ready when the time comes."
In June, Southwest Securities severed its ties to Tower Asset Management, a 14-person investment management group in southern California that managed around $340 million as a registered investment adviser and had been part of M.L. Stern.
Three of Tower’s principals, who managed about $200 million of client assets, have since joined Wespac, an Oakland, Calif.-based registered investment adviser specializing in retirement and employee benefit planning. Wespac is affiliated with Focus Financial Partners and custodies primarily through San Francisco-based Charles Schwab & Co.
