Bgc Group Inc (BGC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth-quarter 2011 BGC Partners, Incorporated, earnings conference call. At this time, all participants are in a listen-only mode. Later we'll facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I will now turn the conference over to Mr. Jason McGruder, Head of Investor Relations. You may proceed.

Good morning. Our fourth-quarter and full-year 2011 financial results press release was issued this morning. It can be found at either the news center or investor relations sections of our website at bgcpartners.com. During today's call, we will also be referring to a presentation that summarizes our results and which includes other useful information; this too can be found in the investor relations section of our site.

Throughout today's call we will be referring mainly to our quarterly results on a distributable earnings basis. Please see today's press release for GAAP and full-year results. Please also see the section of today's press release entitled distributable earnings, distributable earnings results compared with GAAP results and reconciliation of GAAP income to distributable earnings for a definition of these terms and how, when and why management used them. Unless otherwise stated, whenever we refer to income statement items such as revenues, expenses, pretax earnings or post-tax earnings, we are doing so only on a distributable earnings basis. Unless otherwise stated, all the financial comparisons we will be making on today's call will be contrasting the fourth quarter of 2011 with the fourth quarter of 2010.

I'll also remind you that the information on this call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities and Exchange Act of 1934 as amended. Such forward-looking statements include statements about the outlook and the prospects for BGC Partners and for its industry as well as statements about our future financial and operating performance. Such statements are based upon current expectations that involve risk and uncertainties. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied because of a number of risks and uncertainties that include, but are not limited to, the risks and uncertainties identified in BGC's filing with the US Securities and Exchange Commission.

We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update these statements in light of subsequent events or developments. Please refer to the complete disclaimer with respect to forward-looking statements and risk factors set forth in our public filings on Form 8-K, 10-K and 10-Q which are incorporated today by reference.

I'm now happy to turn the call over to our host, Howard Lutnick, Chairman and CEO of BGC Partners.

Well done, Jason. Good morning, everyone, and for those of you with us in the UK, good afternoon. Thank you for joining us for our fourth-quarter conference call. With me today are BGC's President, Shaun Lynn, our Chief Operating Officer, Sean Windeatt, and our Chief Financial Officer, Graham Sadler.

BGC once again generated double-digit percentage growth in revenues for the quarter. This despite the challenging market conditions affecting most of our customers and competitors. We continue to gain market share in equities, foreign exchange, credit and rates.

With respect to real estate brokerage, our acquisition of Newmark Knight Frank in October 2011 has been both successful and accretive. In addition, earlier this week, we announced an agreement to acquire substantially all of the assets of Grubb & Ellis through a bankruptcy court process. We expect this transaction to complement Newmark and be accretive.

Financial service firms comprise the largest category of commercial real estate brokerage clients, and BGC and its affiliates have much better access and at a higher level to these clients than is typical for the real estate industry. Our relationships have already helped our brokers generate significant new business. Given our previous success at expending the client base for acquisitions such as Aurel and Liquidez, we expect BGC's customers' relationships to increase the average revenue per broker for our real estate business over time. We also expect to introduce innovative financial products to broaden the services our real estate brokers can offer to their clients.

Before I turn the call over to Shaun, I am also pleased to announce that BGC's Board of Directors has declared a quarterly dividend of $0.17 per share, an increase of 21.4% as compared to last year. In addition, 79% of the dividends we paid in 2011 are a nontaxable return of capital to common stockholders, which is an improvement over the 70% nontaxable return we had previously estimated for this year and the 18% from last year. So with that, I'll turn the call over to Shaun.

Thanks, Howard, and good day, everyone. Unless otherwise stated, the comparisons I will discuss are for the fourth quarter of 2011 versus a year earlier. BGC's quarterly brokerage revenues increased by 14.3%. This is the first quarter that we benefited from the addition of the real estate brokerage.

As our earnings presentation demonstrates, we were able to grow our market share across rates, credit, equities and foreign exchange. Revenues from equities and other asset classes grew by 1.5% primarily due to increased productivity of brokers added during 2010. This growth was ahead of most comparable industry results. For example, Euronext equity derivative volumes declined by 9% and total US cash equity volumes were up by only 0.5%.

Rates revenues decreased by 5.7% which compares favorably to declines of between 8% to over 20% in Federal Reserve Treasury volumes, CME, Euronext and others. Our performance was driven by strong growth from both cash and derivative desks in fully electronic rates where our revenues were up by almost 14%. We think that rates volumes may continue to be held down across the industry in the short term due to quantitative easing by various central banks and the reorganization of large banks' trading businesses. Longer term, we still see strong tailwinds in rates as high levels of government debt around the world drive volumes in both our voice and electronic businesses.

Regarding credit, BGC continued to gain market share in the quarter. Our overall credit revenues decreased by 5.9% offset in part by continued growth from our e-brokered credit products. In comparison, corporate bond issuance was down 8% in the fourth quarter according to Dealogic. And TRACE reported corporate bond volumes were down 16%.

BGC's foreign exchange desks also continued to largely outpace the industry. While our overall FX revenues decreased by just 1.2%, our fully electronic FX volumes were up 43% and fully electronic FX revenues increased by 29%. In comparison, fully electronic FX volumes were down by 9% in the quarter for CME and 6% for EBS.

The strength of BGC's hybrid platform is one of the principal factors driving our market share gains. BGC has made significant investments in our hybrid brokerage model, so that our brokers can service their clients using whichever execution method our customers prefer, including voice, hybrid, electronic auction and fully electronic trading regardless of market conditions. To maintain our industry-leading hybrid platform, we have continued to add talented voice brokers, even as we expand fully electronic trading across different asset classes and geographies.

BGC now offers e-broking on approximately 90 out of 220 desks compared with approximately 75 of 200 a year ago. This expansion enabled us to grow BGC's fully electronic trading by 13.2% year over year to $36.4 million, or 10% of total revenues. An apples-to-apples comparison to a year ago, setting aside real estate, our electronic revenues would have been a post eSpeed merger record of 11.8%. A year ago, these figures were $32.2 million and 10% of total revenues.

This was the 11th quarter in a row in which our year-on-year fully electronic revenue growth significantly outpaced our overall top line results. E-broking has been a key factor in the expansion of our profit margins over the past two years, and we remain committed to converting additional desks to fully electronic trading as fast as our customers require.

We increased our front office headcount by 25.9% in the fourth quarter to 2,147 brokers and sales people compared with 1,705 a year earlier. Average revenue per front office employee for the fourth quarter of 2011 was down by 9.7% to approximately $163,000 compared with approximately $180,000 one year ago. BGC Partners average revenue per front office employee has historically declined year over year for periods following significant headcount increases, as new brokers and sales people generally achieve significantly higher productivity levels in their second year with the Company.

The year-on-year differences in the front office productivity were also due in part to lower overall industry volumes in rates, credit and foreign exchange in the fourth quarter. In addition, commercial real estate brokerage firms typically generate less revenue per broker than IDBs; however, their level of profitability is generally similar.

With that, I would now like to turn over the call to Graham.

Thank you, Shaun, and good morning, everyone. Unless otherwise stated, all the comparisons I'm making compare the fourth quarter 2011 to the fourth quarter of 2010. BGC generated revenues of $365.3 million, up 13.3% compared with $322.5 million. Brokerage revenues increased by 14.3% to $340.2 million, compared with $297.7 million.

Our revenues from the Americas were up 2.4% to $147.9 million. Europe, Middle East and Africa decreased by 8.9% to $166.9 million and Asia-Pacific revenues decreased 5.2% to $50.5 million. EMEA represented 45.7% of revenues, the Americas 40.5% and APAC 13.8%. A year ago, EMEA represented 56.8% of revenues, the Americas 27.5% and APAC 15.7%.

Excluding real estate, our October and November 2011 revenues were each down by approximately 2% to $112 million, while December was down by approximately 10% to $84 million. Real estate added another $54.4 million of brokerage revenue and $2.7 million in other revenues during the fourth quarter of 2011.

Looking at revenues for our other brokerage products, BGC's rates revenues were $128.1 million, credit revenues were $66.1 million, foreign exchange revenues were $47.4 million and equities and other asset classes revenues were $44.2 million. In comparison, for the fourth quarter of 2010, rates revenues were $135.9 million, credit revenues were $70.3 million, foreign exchange revenues were $48 million and equities and other asset classes were $43.5 million.

In the fourth quarter of 2011, rates represented 35.1% of total revenues, credit 18.1%, real estate brokerage 14.9%, foreign exchange 13% and equities and other asset classes 12.1%. A year earlier, rates represented 42.1% of total revenues, credit, 21.8%, foreign exchange 14.9% and equities and other asset classes 13.5%.

Turning to expenses, total expenses were $317.7 million versus $277.1 million. Compensation and employee benefits were $197.9 million, or 54.2% of revenues. This compares with $173.5 million, or 53.8% of revenues. Non-compensation expenses were $119.8 million, or 32.8% of revenues. This compares with $103.6 million, or 32.1% of revenues.

The absolute increase was due mainly to the acquisition of Newmark Knight Frank, increased professional and consulting expenses related to BGC's ongoing FSA program, and higher interest expense as a result of the July 2011 convertible senior notes offering. We anticipate FSA-related expenses to remain around current levels in the first quarter, but to decline over the remainder of 2012. Over time, we expect our non-compensation expense to decline as a percentage of revenues to less than 30%.

BGC's pretax earnings improved by 5% to $47.7 million, compared with $45.4 million. Pretax earnings per fully diluted share were $0.18 versus $0.19. Our pretax distributable earnings margin was 13.1% compared with 14.1%.

Our effective tax rate for distributable earnings increased to 11.7% in the fourth quarter 2011 compared with 10.9%. BGC's post-tax distributable earnings improved by 1.2% to $40.3 million compared with $39.8 million. Post-tax earnings per diluted share were $0.16 versus $0.17. Our post-tax earnings margin was 11% compared with 12.3%.

Our fully diluted weighted average share count was 292 million for the fourth quarter of 2011. This included a weighted average of 38.7 million shares associated with our convertible senior notes. In the fourth quarter of 2010, our fully diluted weighted average share count was 256 million, including 21.7 million shares relating to the convertible senior notes. At the end of the fourth quarter, our fully diluted share count per earnings was $294 million, assuming conversion of 38.8 million shares underlying the convertible senior notes.

The fourth quarter 2011 GAAP fully diluted weighted average share counts were lower than those for distributable earnings because certain share equivalents were dilutive for distributable earnings but not for GAAP.

We expect our first quarter 2012 calculation of post-tax distributable earnings per fully diluted share to include the shares related to the Company's convertible notes but exclude the associated interest expense net of tax because the impact would be dilutive. Therefore, we expect to add approximately $5.2 million to post-tax earnings and include the 38.8 million shares underlying the convertible notes.

Regarding the balance sheet, as you may recall, last quarter we simplified the definition of our overall cash position to include cash and cash equivalents plus unencumbered securities which we hold for liquidity purposes, currently US Treasuries, and which are included in the Securities owned line item. Additionally, we no longer include cash segregated under regulatory requirements. As of December 31, 2011, our cash position was $385.7 million, notes payable, collateralized and short-term borrowings were $345.5 million, and our book value per common share was $2.42.

Because a substantial proportion of the equity of the firm is made up of partnership interests as well as stockholders' equity. We define total capital to include redeemable partnership interests, noncontrolling interest in subsidiaries and total stockholders' equity. Accordingly, total capital was $498.4 million as of December 31, 2011.

A year earlier, the Company's cash position was $374.1 million, notes payable, collateralized and short-term borrowings were $189.3 million, book value per common share was $2.47 and total capital was $425 million.

With respect to our dividend and taxes, based upon an annualized dividend of $0.68 per share, and yesterday's closing stock price of $6.76, BGC's pretax dividend yield is 10.1%. As a result of 79% of our dividend being a non-taxable return of capital, a New York City resident in the 35% federal tax bracket and the 12.9% state and local tax bracket would have a current taxable equivalent yield of 16.9% when compared to a distribution, dividend or interest payment that is fully taxable at ordinary rates, and 12.5% when compared to a fully taxable qualified dividend.

I would also like to remind you of some of the accounting details of the Newmark acquisition and their impact on distributable earnings for the next year or so. Under GAAP acquisition accounting, certain receivables and associated compensation, which ordinarily would be GAAP revenues and expenses, are deemed purchased assets and liabilities and are therefore not recognized as revenues and expenses. In order to provide a consistent view of our results, we include the collection of receivables and their associated compensation expenses under distributable earnings. These items would have been recognized for GAAP other than for the effect of acquisition accounting.

With that, I'm happy to turn the call back over to Howard.

Thank you, Graham. Excluding real estate, our revenues for January 2012 were down approximately 4% year over year to $117 million, while for the first 14 trading days of February 2012, our revenues were up 3% to approximately $84 million. With that in mind, we expect to generate revenues of between $390 million and $410 million in the first quarter of 2012, an increase of approximately 7% to 12% compared to $365.5 million in last year's first quarter.

This includes approximately $45 million to $55 million from Newmark Knight Frank. We are not including the potential Grubb & Ellis transaction in our guidance.

We expect pretax distributable earnings to be between $58 million and $66 million compared with $64.3 million last year. We expect the effective tax rate for distributable earnings to be around 15%. With this guidance in mind, we expect our dividend to remain consistent at $0.17 for the first quarter.

In order to provide more information, we plan to update our first-quarter outlook before the end of March. So now, operator, we'd like to open the call for questions, please.

(Operator Instructions) Jillian Miller from BMO Capital Markets.

Thanks, guys. So essentially all of your peers I think have announced some pretty concrete restructuring plans to reduce costs in 2012, and it sounds like you guys are planning to take some steps on the non-comp line but you weren't super specific about that. So I was just wondering kind of what your thought process is there.

And then when you look at the comp ratios, where do you kind of expect that to move directionally in 2012 because it seems like the full integration of Newmark could potentially put some upward pressure on it?

So with respect to restructuring, we are comfortable because I think we've been well ahead of things. You'd see our headcount growth this year was less than we otherwise would have expected because some of the short-term rates businesses for example, Fed funds and other businesses which have become very difficult in this low interest rate environment, we obviously reduced headcount over the year. So while our overall headcount was up, it would have been up much more but for that.

So we don't need and didn't expect to take a restructuring charge, we just do those things as part of our ordinary business and as part of being what we consider a well-run Company staying ahead of these things. So we do not anticipate any sort of changes like that certainly as we sit here today. And then, you want to repeat your second question for me?

Just on the comp ratios, when you look into 2012, where do you kind of see that moving? Because with the Newmark acquisition it seems like there could be a little bit of upward pressure on that, with the full integration for the full quarter.

Well, the key to the Newmark acquisition was that the senior brokers and now the broad base have agreed to the model that BGC lives and breathes, which is that they become partners in the Company, that they understand that the equity of the Company is a key part of their compensation, that the dividend makes a difference to their compensation, and that the aligned interest between our employees, our partners and our shareholders is key.

So we expect that while their compensation ratio is in fact initially higher than our brokerage business, our traditional brokerage business, we expect over time for it to come in line. And so while it has added slightly higher, we don't expect it to actually move materially so. And because of the way the real estate brokerage works and there's just less sort of intricate technology on the desk, the net profitability of those brokers is very consistent with all of our brokers here.

So we really do not expect the real estate brokerage business to really be visibly materially different than the rest of our businesses. And that's why we think it fits in so well.

Okay, got it, thanks. And then just with respect to ELX, I know the CEO left recently and was replaced, and I had read that some of the larger backers were reducing their stakes and that you guys were taking on more ownership in the venue. So just wanted to kind of confirm exactly what's going on with the ownership there.

And then if you think that longer term, there's a possibility that there could be a shutdown of the venue or some kind of sale or something along those lines.

Well we are committed to and we like ELX for the future. ELX was always a great opportunity in the world of Dodd-Frank which is coming. More and more transactions will be on an exchange, and therefore we felt that an exchange co-owned by ELX and the large investment bank and trading community would be a very effective asset going forward, and we are no less excited about that today than we were before.

Mathematically, we are investing more money and plan to invest more money in the company, and therefore by definition, our stake will go up and the current shareholders' stakes will go down. But that is my basic understanding of how things are.

So we're committed to it, we like it, I think it's going forward, and we are happy moving forward. There is a new CEO, Rich Jaycobs; he is deeply experienced and talented and we look forward to many new things to come.

Okay, thanks and just one more quick question, if I may. I know you guys hired a new Head of your Market Data division last summer and now with a couple quarters under the new management there, just wanted to get an update on your strategy for that business line, and if you have new projects you're working on or like areas you're hoping to build out and kind of how you see that trending next year?

We expect in the -- throughout 2012 to improve business our business in Market Data. There were some small setbacks in 2011 obviously here in the global and some of the restructuring that some of the major banks did. But we expect to grow our Market Data division.

As we've grown our front office and the brokerage revenue in many of the European/Asian businesses, we see as an amazing opportunity to grow. And if you can remember that most of our Market Data is primarily from US Treasuries. And we see that as a great opportunity to grow into that, and with the help that Mark Benfield, who has just come across and joined us, who started in October 2011, we expect to see some good things in 2012.

Okay, thank you.

Rich Repetto from Sandler O'Neill.

So Howard, on the acquisition of Grubb & Ellis, I know there wasn't a lot of information put out, but can you talk about just maybe general magnitude of what you're buying? I know you said it would be accretive, but we have 2010 numbers, we don't have 2011, but they were sizable in 2010.

And I guess anyway the question is magnitude, is this $100 million, $200 million, $50 million run rate or what-- or more, of what you're acquiring?

Sure, so we are -- we've reached an agreement with the company and we are in the bankruptcy court process, so we will be buying, or we intend to buy all of the, substantially all of the assets of the company. And because it's going through a bankruptcy process, we get to not acquire any liabilities we're not interested in. So that has a sort of balancing factor to it.

So Grubb & Ellis did put out, and it's on their website I think the details of the transaction; and there's an 8-K from Grubb & Ellis that's public with our -- with the agreement itself. But we are -- look, we're working with the company to find what assets would make sense, trying to keep the brokers comfortable in staying with the company. And we have to go through this process to see how things work out.

But we are working through it and we are confident that it will be accretive for the company and we think the combination with Newmark, allowing the back offices to operate more efficiently together, I think will be very effective.

Okay, and then Howard on Newmark or -- and partially related to Grubb & Ellis, so is there an attrition rate that you sort of see with the real estate brokers? For example, maybe the question is just on Newmark, was there attrition of real estate brokers and approximately what that might be?

Well just -- and the finish for my last answer, Grubb & Ellis was a public company, I think there are 10-Qs filed, so you can get more details from their public comment.

With respect to Newmark, we have more Newmark brokers today, I think, than when we bought the company. So overall, I think we are raising brokers, raising headcount, so I don't think attrition is an issue for us. It was a learning experience for the brokers to understand how we think about things.

But the way we think about things is quite in line with brokers. There's a reason why we've been so successful over the years, there's a reason why we retain our brokers. It doesn't mean it doesn't require us to explain our thinking, but ultimately our model of aligned interests with the company is very very effective.

And I think what is really working very well with the Newmark staff, and I think will work very well with the Grubb & Ellis staff who join us, is our relationships with large financial services firms is very very exciting. And our ability to bring in that kind of business and create those relationships with those clients and improve the average revenue per head with those clients has already started and it's very effective.

And that's why in our remarks, we pointed out Liquidez and Aurel. Both of those companies, one in Paris and one in Brazil, tended to be very local in nature. And what we did is we introduced their products and their services to our large financial service clients around the world.

And their ability to increase their average revenue per head I think we've gone over these calls many times. We expect the same kind of reaction in the real estate business because we think our brokers are going to do better because they're going to have lots and lots of new clients giving them lots and lots of business because we have great relationships with those clients. And it is natural for us to use those relationships and introduce them to our brokers.

So we are very excited about Newmark's business and potentially Grubb's business. Very consistent with how we've raised our average revenue per head in our other businesses.

Okay, that's helpful, Howard. And I guess to change the subject off the real estate, but the last question I have is on Dodd-Frank, Howard. Initially, I've gone back and looked at this, the CFTC Commissioner thought that by sometime in the second quarter, you might have mandatorily cleared some OTC swaps. We're nowhere near there. They haven't even -- still haven't got the definitions out.

And I guess my question is, you have experts that are following this. Like where do you see the time frame? There is some volume building at the CME, but still small, but growing. But when do you see the big -- expect to see results -- or your results impacted materially by Dodd-Frank, what time period and what would trigger it?

Well nondiscriminatory central clearing is a mantra that we're delighted to hear every day. Nondiscriminatory central clearing, I could say that every time and it makes me happy. It allows us to turn our receivables on our balance sheet into cash, which is always very nice. It allows for volume to dramatically increase.

Because right now each of our counterparties has to keep their swap going for 10 years and they don't really get to offset it. They've been trying a variety of different ways to offset it but it's cumbersome and it's problematic. Whereas nondiscriminatory central clearing for swaps, credit default swaps, would improve volume greatly and improve our cash flow dramatically. It would allow high frequency trading firms into the market which tend to be some of the largest volume clients in the world. It would be good for our business.

So I would say it this way, when the rules are written, two quarters later, it would be my guess, that it will start to impact our business in a positive form simply by volume, by cash flow and by the addition of additional clients who are traditional clients of ours, for instance in US Treasuries. They would on the same system be able to trade then centrally cleared interest rate swaps the way they clear and trade euro dollars now. So I think these things would be two quarters later from when the rules are written. If we think the rules are coming out this summer, then that would put us at the end of the year.

But obviously we've listened to politicians in Washington and bureaucrats in Washington give us comments on when they expect things to do, including at your conference, Rich, we heard them say it; and those dates haven't come to pass as of yet. So I think two quarters after the rules comes out, and in Europe sometime well after that. So that's my best call.

Okay, very helpful and thank you.

Patrick O'Shaughnessy from Raymond James.

Good morning, my first question is on your dividend, so you just announced that your most recent dividend is going to be $0.17, above $0.14 that it was a year ago. Looking forward, if we continue to see relatively soft macro conditions and your revenues being down year over year slightly or maybe flattish, is there a chance that you'd have to cut your dividend going forward, or are you pretty confident that you can maintain it or potentially increase it from the current level?

From where we stand today, as I said we expect our dividend to remain consistent at $0.17. I don't see anything as we sit here today that would have us changing that view and that's why I tried to say we expect it to remain consistent at this level. Obviously if we continue to grow our business, our objective is of course to raise our dividend. But from what we see today, I think we are comfortable with an outlook that has it remain consistent.

Okay, thanks. And then a second question is, as far as the industry as a whole, somebody else touched on it earlier, there had been some layoffs throughout the industry. At this point, do you think that there is substantial overcapacity still? And if so, at what point does more consolidation perhaps amongst the big wholesale brokerage firms start to take place?

I don't -- I guess from our perspective, we don't really understand what overcapacity really means. We hire productive people, we provide them with technology, and we make money from them.

There are some areas that are obviously difficult. The short end of the interest rate market became a very difficult market to broker, when interest rates turned to nil. It's very difficult to broker overnight Fed funds if interest rates are nil.

But the fact is, I think we see the opportunity remains that there are numerous small companies who do revenues, those small companies are going to see ever-increasing costs whether that's because of set cost, compliance costs, just the cost of doing business will continue to rise, the cost of technology will continue to rise, and our ability to consolidate and continue to hire from others will continue.

So there's always consolidation going on in the business. Whether there's the math of a right consolidation amongst the bigger players, ultimately my view is that firms like ours become ever more attractive to the exchanges of the world. If they can't buy each other, eventually they will come and look at the companies with great trading technology like ours. So I think ultimately we will become more attractive in the world.

And whether there is consolidation amongst and between the big ones, look, we are an economic player. If we think we can make money on a transaction, we would consider it. And if we were offered the right amount of money, we would have to consider it because that's the practical thing to do.

So we are an open-minded Company, we think we have great technology and obviously we are performing very well as Shaun went through. But I think we see plenty of growth ahead of us and I don't think we view overcapacity as an issue. Some desks of course, but other desks have great opportunity.

Okay, that's fair. And then my final question, if I could. It's kind of interesting -- in your last response you talked about how you still have interest in buying smaller financial brokerage firms and yet your two most recent deals had been on the real estate side of things. So I guess looking out two or three years from now, how do you view BGC Partners?

Obviously, it seems like at this point you're not just a financial services brokerage firm anymore, but how do you view BGC Partners in the future and I guess almost as importantly, how do you want investors to view you? What sort of investors do you want to sit across the table and say -- wow, I want to buy shares of BGC Partners?

We are first and foremost a brokerage Company, that's who we are. We service and do very well servicing financial service companies around the world. As it turns out, the real estate brokerage business has a very, very large overlap to financial service companies and their vendors. And that business overlap I think will go very very well with us.

We once upon a time were in the fixed income business. Then we were in the equity business. Then there were companies in the inter-dealer broker space that went into the commodity business. And then when you broker oil, they decided, well why should we hang up the phone and not broker the shipping of the oil? So they went into the shipping business.

But the answer is, all of those businesses, including the real estate business, have an enormous component of financial service companies as the major client. They also, each of them, have an additional set of components of other clients, and there is nothing against doing business with other clients. But the model of having the largest component be financial services companies has a great overlap to us, and we think we can raise the average revenue per head for real estate companies in much the same way.

So I think -- I'm hoping, because the way we think about this business is we like the brokerage business which has an excellent overlap amongst financial services companies. We like our ability to create electronic product categories amongst our products. While it is surely early to suggest that property derivatives or real estate type financial services will be electronic anytime soon, make no mistake about it, we are going to be rolling them out and building them starting very very soon, and that is very very exciting.

With respect to our other businesses, the real estate businesses get a lot of notoriety, right? But you should expect us to grow in energy, you should expect us to grow in commodities, you should expect us to grow and continue to grow in foreign exchange and rates and emerging markets. There is no less of an extraordinary opportunity in the financial service markets than there are in other markets such as real estate.

Real estate is new, but it is a great overlap to our business intellectually and with the clients practically. And if you looked back at the third quarter, there's one weak quarter and all of a sudden everybody's writing off the legacy businesses.

The idea, the idea that the world's rates businesses with the vast and endless amount -- the government bonds that are coming out and bailouts which create -- have the possibility of creating a European government bond market like the United States of America, if there's anyone on this phone who doesn't think the rates business is the most exciting business in the world as of right now, you got to read the newspaper. It is awesome.

So please, just because we have fun new things to talk about that are exciting and growing quickly, do not under any circumstances write off the fact that our core financial services businesses are amazing, and we love them and they are going to grow and we are very excited about them.

Got it, thank you.

(Operator Instructions) Rob Rutschow from CLSA.

Hey, good morning, everybody. I was hoping you could give us a little bit more color on how your activity looked among the European banks in the fourth quarter, and how that's looking so far in the first month and a half of this year.

Typically, the European banks has been reasonably okay. I mean obviously it's tough times for a lot of the European banks at this current time with the reorganization that's been going on and the various capital restraints that a lot of them have, but that's pretty much a global issue. Was there a particular point you're trying to get to, Rob?

Well I guess, there's some concern that those guys are pulling back in terms of their investment in loans and so forth and they're buying government debt, but maybe they wouldn't necessarily be hedging that activity or looking to the derivatives markets as much as they would have otherwise. So I'm wondering if you're seeing any evidence of that.

No, I think you're seeing just a change of the business, the way people are looking at the risk and the way they're trying to build their businesses now. Because obviously the various constraints that are put on some of the huge banks now with regards to holding inventory, I think that you have these ebbs and flows as markets change and move. I think we've seen no significant change in Europe, and we don't envision one to be honest. I think it's just going to move with the market.

Okay. If I could switch gears, and I apologize if you disclosed this, but can you tell us how many real estate brokers you had in the fourth quarter? So of the 2,147, how many of those were real estate?

I think when we first announced the deal, I think there was -- put out at 425 brokers. So I mean we put that number out before.

Okay, and then I don't know, I believe what I read about Grubb & Ellis was that they had maybe 3,000 brokers, is that a right number?

I think the last public filing I saw of them had -- their brokers were in the -- around 800 and in around that number.

Okay. So I guess you're sort of more than doubling or about doubling the size -- or tripling the size of the real estate business. Are there any additional sort of infrastructure investments that you need to make to support this bigger headcount?

Because of our infrastructure capacity in handling the 1,700 brokers at BGC and then having integrated the Newmark Knight Frank real estate model, I think we are actually well along the way of having a broad and strong technological infrastructure that can add brokers at a good clip. So I think while it's certainly not perfect yet, I think we are in good shape.

I think Graham said that we expect our non-compensation expenses to drop over time to below 30%, so obviously we think whomever we add, we expect to be able to gear positively our expense ratio as compared to our revenues and our comp structure. So I think we're in a good position, I think we like the way things look.

Remember we announced the deal with Newmark way back in April, so I think we've-- this is not a new thing. We've been thinking about this and working on it in gory detail for just under a year now. And with our technological capabilities, we can come a long long way in a year.

Okay, and a question about sort of longer-term outlook for the real estate brokerage business, do you see any changes in that business, particularly as some of the 2005, '06, and '07 CMBS vintages need to be refunded?

Rob, can you repeat that? Rob, can you repeat that question, sorry?

Sure, so how are you thinking about the real estate business long term particularly as some of the 2006 and '07 vintage CMBS start to mature?

Well the business -- right now we are focused in the real estate brokerage business and that allows us to do tenants, it allows us to do landlords, and it allows us to sell and help others buy real estate. We are not an owner of real estate, that's not our business. We're not a developer of real estate, that's not our business. We're a broker of real estate.

And so the more things that happen that put real estate on the cover of the newspaper, the better. So the more things that happen, just like the bond market, the more things that happen, is good for us.

So the reduction of CMBS lending that happened in '08 really reduced the capital market -- the sales of real estate, which is a comparatively small business for Newmark Knight Frank, which is an advisory and leasing and brokerage company for tenants and landlords. So we will -- we do expect to build out that brokerage business of sales, but right now that is not a factor for us.

Okay, that's helpful. Last question would just be, the -- I guess the stock-based comp this year, or the amount that was changed or granted exchangeability was about $108 million I think. Is that consistent with what we should expect going forward? Can you give us any guidance for 2012 in terms of non-cash comp? And would you expect any changes in the way that you're accounting for that stock-based comp in terms of the timing -- the duration or length of amortization there?

Yes, no certainly we're not expecting any changes to the way we do our accounting. And I think it's reasonable to assume that the sort of level of charges will remain as it is now.

Okay, so like over $100 million is kind of a safe assumption?

Yes.

Okay, all right, thank you.

And at this time, there are no other questions in the queue, I'd like to now turn the call back over to Howard Lutnick for closing remarks.

Thank you all for spending the time with us today and we look forward to speaking with you again next quarter. So have a great day and thanks, everyone, for joining us.

And ladies and gentlemen, this concludes your presentation, you may now disconnect and have a good day.