ITG Chief Seeks New Path for Troubled Brokerage
February 05 2016 - 11:40AM
Dow Jones News
Frank Troise is three weeks into a job as chief executive of
Investment Technology Group Inc. and he faces a familiar
task—plotting a new path forward for the brokerage firm.
The company he first joined almost two decades ago has been
under pressure since last summer when executives said they were
working with the Securities and Exchange Commission on a settlement
related to ITG's "dark pool" and a pilot trading program. The
disclosure and subsequent $20.3 million penalty led many customers
to route stock-trading orders elsewhere.
Mr. Troise, who left a job as a managing director of J.P. Morgan
Chase & Co. to take the helm of ITG last month, said in an
interview at the firm's downtown Manhattan offices that ITG had
made progress in rebuilding trust and was on the cusp of a
strategic review that will result in a narrower focus on its core
brokerage business.
When he first joined ITG in 1997, the company known for its
technology operated "in a market that was far less ripe" for it,
Mr. Troise said. However, back then it had a market capitalization
roughly four times what it is today.
Over the past decade the firm has added to its core financial
technology business, branching into research in 2010 with the
acquisition of Majestic Research Corp.
In the wake of several board-level changes, the settlement and
the related ouster of ITG's former chief executive, Mr. Troise must
now decide which businesses the firm should commit to
long-term.
Richard Repetto, an analyst at Sandler O'Neill + Partners LP,
said, "ITG needs to seriously look at divesting its research
unit."
The firm has already pared down the group. It agreed in November
to sell its energy-research group to private-equity firm Warburg
Pincus for $120.5 million in cash. The deal gave ITG money to spend
on acquisitions, but also raised questions about the future of the
remaining research unit.
Mr. Troise said acquisitions are a possibility and that the firm
was prepared to spend money to pursue new initiatives, but he
didn't commit to specific plans. Sitting in a conference room with
his sleeves rolled up, the new chief executive emphasized the
firm's trading and analysis businesses that involve helping clients
navigate high-speed, fragmented markets. He says the focus is on
execution, liquidity, workflow tools and measurement.
The first change he is pushing: When there is a new business to
get into, the firm is going to try to become a dominant player, Mr.
Troise said.
In the past, it treated forays into new asset classes like
credit and foreign exchange more like experiments that it would
pursue further if they started to gain traction, he said.
ITG on Thursday reported a net loss of $2.5 million in the
fourth quarter, excluding the impact of the sale of the energy
research business, compared with net income of $13 million in the
fourth quarter of 2014.
The firm posted $224.2 million in revenue in the fourth quarter,
including gains from the sale of the research business. Revenues
excluding that impact were $116.5 million, compared with $149
million in the prior-year period.
Chief Financial Officer Steven Vigliotti said on a call with
analysts that while earnings for the final quarter of 2015 "were
not positive," the firm was making progress in recovering from the
SEC settlement. He said that almost all of the clients that stopped
trading with ITG following the settlement have returned to doing
business with the firm in some capacity.
Adding to the pressure for firm leaders is the threat of a
potential activist campaign. Philadelphia Financial Management of
San Francisco LLC and Voce Capital Management LLC disclosed in a
regulatory filing late last year that they had amassed a combined
8.6% stake in the firm. The two firms have pushed for board-level
changes at ITG in the past.
In January, the firm named Minder Cheng, who had been a board
director since November 2010, as chairman, replacing Maureen
O'Hara. It also added two other board members last month.
Analysts have said ITG's stock has room to grow.
"Progress is slow but unmistakable," J.P. Morgan Chase & Co.
analysts wrote in a January note, referring to the firm's success
in regaining lost equity trading market share. They upgraded the
stock from neutral to overweight at the time.
Write to Sarah Krouse at sarah.krouse@wsj.com and Bradley Hope
at bradley.hope@wsj.com
(END) Dow Jones Newswires
February 05, 2016 11:25 ET (16:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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