NEW YORK—Longtime KBW Inc. Chief Executive John G. Duffy has stepped down, saying he has been diagnosed with prostate cancer, and will be succeeded by lieutenant Thomas Michaud.
The news about Duffy comes on the same day the investment bank reported a big loss in its third-quarter results and said it will cut 13% of its work force.
KBW, operating as Keefe Bruyette, specializes in advising banks and financial companies. During the third quarter, the banking world was in tumult as fears about the European fiscal crisis spread and the U.S. economy struggled. The KBW Index, a list the firm runs of 24 banks and used to measure banking stocks, fell 23% during the quarter, and fell 17% in the three days after the U.S. debt rating was cut. The firm said it was the third-worst quarter in the index's history.
Michaud told analysts on a conference call the turmoil hampered the bank's trading activities and led customers to pull out of the capital markets. The bank lost $17 million in revenue on its own trading during the quarter and Michaud said capital-raising efforts by customers fell to levels last seen in the 2009 first quarter, when the stock market bottomed.
Michaud said the bank did reposition its exposures, but wasn't fast enough.
The bank posted a loss of $15.7 million, or 51 cents a share, compared with a profit of $3.8 million, or 11 cents a share, a year earlier. Analysts polled by Thomson Reuters had expected a profit of a penny per share.
Revenue slumped 44% to $50.4 million, well below the $82.5 million analysts expected. The biggest blow to revenue was the $17 million in losses for trading on the bank's own account.
"Our quarterly results were not acceptable," Michaud said.
JMP analyst David Trone said the trading losses were surprising, calling the total quarter "well below expectations."
Investment-banking revenue dropped 16% as banks held off on capital-markets activity. That was softened somewhat by higher commission fees in the quarter.
Meanwhile, even as the total dollar amount in compensation dropped, the bank's compensation ratio, a measure of pay to revenue, soared to 89.4% from 62.3%.
The bank announced that after an internal review it would be cutting about 80 jobs. That added about $1.5 million in severance costs to the quarter and will add $3.2 million in the current quarter. Job cuts have been common among Wall Street firms this quarter and Michaud said the majority of the cuts are happening this week.
But despite the results, Michaud said the bank is well capitalized and positioned to meet "turbulent economic times."
The bank also announced it would repurchase $50 million more in stock, after spending $24.7 million doing so during the third quarter.
KBW shares rose 5.5% to $15.07, buoyed in large part by the market's excitement that European countries had reached a deal to ease their crisis.
Michaud said there was reason to be hopeful, noting this week the bank led the first bank-stock offering since July. He added KBW is "keeping an eye on" requirements that Europe's banks add billions in capital, which could bring in more business.
Duffy, a public face of the investment-banking world, will remain with the firm as a vice chairman and continue to focus on investment banking.
He has been with KBW for 33 years becoming a co-CEO in 1999. He gained acclaim for leading the firm through the aftermath of the Sept. 11 attacks, when it lost 67 staffers, or 40%, of its New York work force who worked in the World Trade Center, including his co-CEO and then-chairman Joseph Berry. Duffy then led the firm through its initial public offering in 2006.
He said the "prognosis for a full recovery" from his cancer is "excellent."
Michaud has been a vice chairman and the chief operating officer since September 2001. Andrew Senchak, who had led various investment-banking activities including the mergers and acquisition team, will take over as chairman.
This story originally appeared in The Wall Street Journal.
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