StoneX Group Inc (SNEX) 2008 Q4 法說會逐字稿

Good afternoon, and welcome. At this time, I'd like to welcome everyone to the fiscal 2008 fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. . After the speakers remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Thank you. Mr.Scott Branch. You may begin your conference call.

Thank you, good afternoon everyone. My name is Scott Branch, President of International Assets Holding Corporation. I will be hosting this earnings conference call for our final quarter of our 2008 fiscal year, ended September 30, 2008.. We have a simple format planned for today, it should last no more than 15 minutes before questions and answers. Sean O'Connor, our CEO will present an overview of the quarter and year's results. I will deal with the internal and operational developments since our last call. Brain Sephton, our CFO will take you through the recent earnings release. Sean will then wrap up briefly and we will take questions.

If any listeners have suggestions on the format content of this and future calls, please do not hesitate to contact the Company through the Investor Relations e-mail address on our website, www.intlassets.com. We filed our Form 10-K for fiscal quarter and year ended September 30, 2008 with the SEC, yesterday. It was posted on our website at www.intlasset.com, under the SEC filings section of the Investor Relations tab.

Before moving on, I'd like to advise you and all participants should note that the following discussions should be taken in conjunction with the most recent financial statements and notes thereto, as well as the most recent Form 10-K filed with the SEC on December 8, 2008. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Commission Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many are which beyond the Company's control, including adverse changes in economic, political, and market conditions, losses from the Company's marketing making and trading activities arising from counter-party failures and changes in market conditions, possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of Federal and States Securities law and the impact of changes technology and the securities of foreign exchange commodities dealing in trading industries.

Although the Company believes that its forward-looking statements are based on reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company's actual results will not differ materially from any results express or implied to forward-looking statements. The Company under-takes no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not a guarantee of future performance. I'll now turn you over to our CEO, Sean O'Connor.

Good afternoon everyone. Thanks for joining us on our fiscal year end conference call.

Firstly, looking at the 2008 fiscal year overall, during 2008 we started to realize the benefits of the significant growth strategy undertaken in 2007. Overall we're pleased with our 2008 results, which mark another record despite the very challenging marketing conditions, especially toward the end of our fiscal year.. Although below our original expectation, we set new records for operating revenue and earnings on both a GAAP and a non-GAAP basis. And achieved a return on average equity of 50% on a GAAP basis and 17% on a mark-to-market basis. Our adjusted mark-to-market revenues for the year were just over 100 million, up 31% on the prior fiscal year.

For fiscal 2008 year each of our trading businesses achieved record revenues, of in an aggregate of trading activity showed an increase in revenues of 44% over the prior year. Our advisory activities, which consist of Asset Management in Capital Markets experienced difficulty market conditions especially during the last fiscal quarter. In aggregate these revenues declined 20% over the last year. We also realized a doubling of our shareholder capital on a GAAP basis, which now stands at 75 million with committed bank facilities, which largely are currently undrawn.

We ended the fiscal year in a strong financial position that enables us to take advantage of opportunities that is may arise, 2008 will also be remembered for the financial head winds that steadily gathered strength during the year, ending in a hurricane, which is still raging. We were not entirely immune to the effects of this financial hurricane and found the last quarter of our fiscal year to be especially challenging for our Asset Management business, while our trading businesses were able to take advantage of the dramatically increased volatility.

So moving towards talking about the last quarter, the fourth quarter ended September, our Q4 results while probably acceptable relative to the market are below our expectations and we are definitely not happy with the result. Our trading businesses were able to take advantage of the increase volatility and reluctance by our competitors to commit capital to support their customers and business in this market environment. Our equity business equaled their best ever quarter and set a new one month record in September. I am please to say this level of performance has continued beyond the fourth quarter. But difficult markets aloud us once again to demonstrate to our Institutional customers our expertise and commitment to this market and we believe we're able to increase market share as a result. On the foreign exchange side, we set a new record in the fourth quarter and similar to the equity business believe we have been able to gain market share and should be able to move this business to the next level in the coming year.

On the commodity side the real news was the explosive growth of our precious metals business over the fourth quarter. With the initiatives in both to buy in in Singapore really hitting their stride in the fourth quarter and achieving three successful record months during the quarter. The growth in the precious metals served to offset a marked slowdown in the base metals business, resulting in a satisfactory performance for the overall commodities business for the quarter. On the negative side, the market turmoil really hit our asset management business hard. We suffered significant redemptions as our largely European Institutional Investors rush for liquidity. The daily liquidity of the funds we managed combined with the very good prior performance seemed to exacerbate these redemptions. This quickly became an industry wide situation as liquidity drained from the markets and making redemptions more difficult to satisfy and generally producing irrational mark-to-market pricing in our markets.. As a result of these extraordinary market conditions, we reported a loss for the quarter in Asset Management of 3.9 million against revenues last year of 5.1 million, a turn around of $9 million.. The losses were largely a result of aggregate markdown of around 10% on the seat capital we have in our Asset Management business, as well as clawback of the remaining performance fees earned earlier in the year, partially offset by management fee revenues.

The Company's Assets Under Management most of which were managed by our joint venture INTL Consilium increased from 1.3 billion at September 30, 2007, reached a peak of 2.3 billion at June 30, 2008, but then declined back to 1.2 billion by year end so back to where we were a year ago. Although assets may fall further before they start to stabilize and hopefully increase. Clearly, the Asset Management business, especially the INTL Consilium business, which is our joint venture has suffered a major setback and may take time to rebuild. Just to put this in financial context for fiscal 2008, there was-- for that year for our fiscal 2008 year, there was a small pretax loss to shareholders of about 400,000 associated with the INTL Consilium activities. So in aggregate over the year provided a small loss. So even a break even result from INTL Consilium in 2009, would represent an improvement over the 2008 result; although, it's difficult to predict how this will evolve and what exactly might transpire with this business.

We believe that our Asset Management business has an excellent team of people with a long and exceptional track record of producing good returns in niche areas. This industry is clearly facing the perfect storm and it is unclear how this may play out for the industry generally and us in particular. I suspect the the managers that survivor, and there will not be many will ned up being long-term beneficiaries of the situation. We aim to one of these firms but are facing a rebuild of this business in the short-term. In summary, our overall business model continues to be sound in the most challenging of environments for financial organization. We largely avoided the pitfalls that have imperiled many and produced a 17% mark-to-market return on average equity for the year, within our target range. Our longer-term investors will recognize our conscious effort to develop a number of client oriented business, with uncorrelated revenue streams, which played a key part in our firm stability during 2008.

With that, I'll hand you back to Scott Branch, who will comment on internal developments.

Thank you, Sean. As a Management team we view our primary responsibility is to continuously allocate capital to opportunities that we believe will generate the best medium and long-term returns for our shareholders. As long-term investors, ourselves in the Company we are much less concerned about short-term returns. As previously mentioned, we took the decision to close the margin FX trading activity established in Hong Kong during late 2007. The unit produced a small trading loss during fiscal 2008 with no immediate prospect of attracting sufficient clients to generate revenue. The closure will eliminate $2.2 million roughly per annum from our noninterest expenses.

On a continuing basis, our fixed expenses were 8.3 million in Q4 down slightly from Q3. Foreign and acquisition or other change in activity our fixed costs should continue at the current level for the foreseeable future. Brian will talk a bit more later on about our overall cost structure and the variability thereof that one of the key aspects that we have tried to focus on is making sure that a significant portion of our costs are variable to revenue. And that also helped us during the recent quarter.

As Sean mentioned, we reported mark-to-market losses of around 10% on seat capital allocated to Asset Management. This seat capital has an aggregate over the last two years both generated a positive return for us and allowed us to produce track records for new funds and products. We entered the fourth quarter with approximately 42 million of seat capital investments, and during the first quarter realized a $4.2 million markdown on these investments. And, recognized, a $4.2 million markdown on these investments. Emphasize that it's mark-to-market and has not been crystallized. This is within roughly the maximum range that we considered possible under extreme conditions. These mark-to-market losses are in part due to pricing dislocations on hedge positions at the end of 2008 that may recover as prices begin to normalize, irrespective of the levels at which they normalize. However, going forward, the net losses on a scale more limited than we experienced in Q4 are possible. The value of our seat capital investments at the end of September 2008 was approximately 38 million.

During the fourth quarter, we also decided to write off the remaining exposure to a customer who defaulted on their obligations to us in the second quarter. At that time, we wrote off 50% of the exposure. We still have a valid claim on assets and continue to pursue it. The value of the specific fixed assets that we placed the most credence on is highly uncertain in the current economic environment and we have decided to fully provision this exposure. In the last six years of operation, this is the only material credit loss we have experienced. While we are certainly not pleased with these losses and may recoup some portion of the seat capital markdowns in the future, we are satisfied that our market counterpart and liquidity risk management practices have performed as anticipated. As a result, we ended the year in a stronger financial position than we have ever enjoyed. On a GAAP basis, as Sean mentioned our shareholders capital now stands at $75 million. And we have significant bank facilities available to us on a committed basis that continue into fiscal 2009.

Our business entails continuing exposure to a wide variety of counter-parties We had no exposure of any of the headline making counter-party failure over the past few months. Our risk management practices remain unaltered with single-peak counter-party exposure capped in the range of 10% of capital. As a result of these modest counter-party risks relative to our capital base and revenue the magnitude of any potential future losses should be limited. The market volatility over the past few months has been an extreme test of market risk policies. We have continuously emphasized that we take very limited market exposure in our trading businesses and our results in these businesses demonstrate no direct exposure to market movements. Of course, our trading results are impacted by changes in both volume and spreads that indirectly arise from volatility. With the continued growth and volume of transactions and geographic diversity of our activities and really referencing here the growth in Dubai, Singapore, we will be investing greater time and effort in the development of an expanded internal control and internal audit capability in the coming year.

I'll now hand you over to Brian Sephton for a review of our financial performance.

Good afternoon. I should remind you that we do not give future revenue or earnings guidance. This review covers the fourth quarter of fiscal 2008 ended September 30, 2008. For new listeners I will repeat what we have said on previous conference calls.

On these conference calls and in the management discussion portions of our filings, we present natural information on a non-GAAP basis in order to take into account mark-to-market adjustments in our commodities business. The reason we give you the mark-to-market information is that we do not believe that it makes sense to discuss the GAAP numbers with you because they do not reflect the commercial results at our commodities business and therefore the Company as a whole. We access all of our businesses on a fully mark-to-market basis in our daily and monthly internal financial reporting. And thirdly, we calculate commodities traders bonuses on the basis of fully mark-to-market results not on GAAP results.

Readers of our Form 10-K filing should look at Item 6, our selected financial data on Pages 15, 16, and 17, for a summary of GAAP and non-GAAP information. This section also gives the reconciliation between GAAP and non-GAAP information that the SEC requires us to give. Please note that whenever I talk about an adjusted number on this call, I'm talking about a non-GAAP number.

The Company's adjusted operating revenues for Q4 decreased 26% from 24.8 million last year to 18.4 million this year. Operating revenues in our equities market making business increased by 21% and in our foreign exchange trading business by 41%. Our equities market making business has their second best quarter ever with Q1 of 2008 being the best. But September 2008 was their best month ever. The foreign exchange business had their best quarter ever in Q4. Our commodities trading business showed a 30% decrease over last year, mostly because of reduced levels of business in the base metals business as prices fell. Our precious metals business continues to expand as our Dubai and Singapore teams become more established. Fee revenue in one debt capital markets business hs suffered with the continuing lack of appetite for risk in the debt markets. It was down by 50% over last year. Sean and Scott have both talked about the mark-to-market losses and reduction in fee revenue in our Asset Management segment so I won't repeat what they've said. Our interest expense for the quarter decreased 17% from 3.6 million to 3 million. Interest rates were lower in Q4 of 2008 than in Q4 of 2007, while average borrowing levels were much the same. Holders of our convertible notes converted 8.2 million of notes just before the quarter end. This will lead to annual interest savings of (inaudible) [0.6 million], starting from Q1 of fiscal 2009.

Our noninterest expenses from continuing operations increased 6% over last year. The compensation and benefits number declined by 8%, partially reflecting lower variable compensation based on lower adjusted operating revenues. The clearly and related expenses relate largely to the equities business. These were up 8%, reflecting the largest transaction volumes flowing through that business. Included in the other noninterest expense of 4.1 million was the bad debt provision of 1.2 million, which Scott has referred to, excluding this amount, other noninterest expenses were 2.9 million an increase of 12% over Q4 of last year.

As mentioned earlier, we have closed our Hong Kong FX margin trading operation. The expenses of approximately 1.1 million for the business for Q4 are not included in the 16.8 million total noninterest expenses shown in our earnings release yesterday. After taking into account a tax benefit of 1 million in the final quarter, we show a loss of (inaudible) 0.1 million for discontinued operations in Q4. For the first time in our filings, we've shown an analysis of our variable versus fixed costs. This appears on page 24 of our Form 10-K, after a year of growth in 2007, which carried on into Q1 of 2008, our fixed costs have stabilized since February 2008. Our aim is to keep our noninterest expense available to the greatest extent possible and to keep fixed cost as low as possible. The ratio of variable to fixed noninterest cost is currently about 50/50.

Now comparing Q4 with Q3 of 2008, adjusted operating revenues of 21% down from 23.2 million to 18.4 million. Equities revenues increased by 14%, Foreign exchange by 44% and debt capital markets by 50%. Commodities trading adjusted operating revenues decreased by 34%. Asset management revenues decreased from 4.1 million in Q3 to a loss of 3.9 million in Q4. For the reasons already discussed.

Interest expense increased from 2.4 million to 3 million with a slight increase in general borrowing levels. Which was to support an expanding precious metals business and net interest paid on interest rate swaps of approximately 0.3 million. Noninterest expenses for continuing operations increased marginally from 16.5 million to 16.8 million. As I mentioned, 8.2 million of our convertible notes were converted just before the quarter end. This reduced the principal value of our outstanding convertible notes from 25 million to 16.8 million. But, more importantly, from our point of view added 8.2 to our permanent equity.

Gap earnings of 27.8 million for the year, and options activity during the year pushed our stockholders equity from 35.6 million at the end of September 2007 to 74.8 million at the end of September 2008, measured on GAAP basis. On a non-GAAP mark-to-market basis our stockholders equity was 77 million at the end of September 2008. Only 2 million different from our GAAP stockholders equity. The convergence of these two numbers over the past year is a result of realizing the large unrecognized gains included in commodities inventory at the end of fiscal 2007.

Net asset value per outstanding share at the end of September, 2008 was $8.38 on a GAAP basis and $8.66 on a non-GAAP basis. Our balance sheet remains very liquid with approximately 83% of our assets in cash, receivables, financial instruments, and investments. Further, 13% of our assets are in metal inventory. A total amount owing to banks at the end of September was $120 million and the ratio of total asset toss stockholders equity was less than 6 to 1.

I'll now hand you back to Sean O'Connor to wrap up the call.

Thank you, Brian. The entire global financial markets are now in uncharted territory with many storey financial firms having collapsed or being [day factored] nationalized. The business models and future viability of many large financial institutions both investment banks and hedge funds are now in serious doubt. In many ways, the financial markets as we knew them are over and it is impossible to accurately predict how things may play out.

Our robust customer basis consists primarily of commercial end users who have a regular need of our services. We do not rely on speculative investors or customers. A market that has been divested over the last year. Our business model is not predicated on leverage or financial asset prices constantly inflating. While we are not immune to the effects of this financial hurricane, e have weathered the storm better than most producing a break-even non-GAAP result for the quarter. Despite closing down the Hong Kong office, further credit write-offs and mark-to-market losses on our Asset Management seat capital. Our equity, foreign exchange, and precious metals business all set new records despite market conditions; however, we do not belive that relative performance is the right yardstick and on an absolute basis Q4 did not meet our expectations.

Looking forward, the near-term environment continues to be uncertainly, especially for the large financial institutions whose business models may not be applicable to this newly unfolding environment. We believe this provides us with an incredible opportunity for a smaller client focused business such as ours to fill the void being created and emerges a much larger, more profitable business in the medium term. We have the resources, the infrastructure and the capital available to actively look to take advantage of opportunities as they arise.

We'll now take any questions, advice, or suggestions you have for us. If you'd like to push the number 1 on your phone, your questions will be automatically queued, hit the pound sign and your questions will be deleted. Patricia, we are ready to take any questions.

(OPERATOR INSTRUCTIONS) . The first question is from the line of Robert [Shook]. Your line is open, sir.

I appreciate the wealth of information that's in this conference call. But it bewilders me why the quarterly report couldn't contain a lot more of this and in larger print. The 10-K wasn't available but the assets doubled. It's difficult to check those out. You got to listen to the conference call several times to pick up all the detail. I would appreciate it more in writing.

Okay. Good suggestion. We'll try and see if we can accommodate you. We can certainly make the type larger. That's easy.

And include a balance sheet.

The problem is we start including balance sheet we end up replicating what is in our K What we're trying to do -- just our thought process with our earnings release at one point it became a wordy explanation of all the numbers. That didn't serve any purpose. We'd put a table in of the key performance numbers and file the full financials in our K. And not include a play vanilla, this went up by this X amount and so on. That's what we've decided to do to make it cleaner and easier and with less verbiage. Let us relook and we'll see if we can improve on the process. But appreciate the suggestion.

A couple of quick questions, on the convertible. Why would somebody convert with a strike price so high. And the recent purchases by officers and directors was that in the open market?

First of all, given our share price is now, in late September our share price was way above the conversion price of $25. When the share price was in the money. We sitting at roughly 10 bucks. Our share price at the end of September was in the 20s.

Sean, just to give some numbers there, on the 19th of September we closed at 2798 and 2797 27. We had a week where we were above $26.

But clearly we gave us more equity. And we glad that it happened. In terms of the purchases by insiders, I'm not really sure what you're referring to.

I think you may be referring to some of the filings that came out today and that has to do with vesting and option exercises and some grants as well. So there's a variety of factors.

There were no net purchases in the market during the last two months by any insiders. We're in the closed period.

Okay.

We would have loved to buy but we couldn't. Okay. Does that answer your question?

Yes.

Next question please.

Your next question comes from Graeme Rein, your line is open.

Hi, Gram, it's Scott.

First of all, congratulations for dodging a lot of the pitfalls that might have been out there.

We prefer to make money and we didn't do it to the extent we wanted to.

Can you talk a little bit about the competitive environment and your trading businesses. Are the spreads tightening? Are you seeing more or less competition? Are the bigger banks going away?

Just to cut through a little bit, great time for our trading businesses. The traders are having a ball, doing very well. We are continuing. Our business is not stressed at all. We're not laying off people. We're going forward and kind of the rest of the world out there is having a rough time and people are not focused on the businesses. And we've seen this happen in our careers four or five times now. The larger players sort of retreat to -- the sort of main businesses. The smaller niche businesses get left behind. We would love for this to continue. I think this is both an environment where we can make money and an environment where we can really show sort of how -- show how good we are to our customers and grow our business. And we always welcome these opportunities. Great businesses get built in difficult times.

And in particular in the equity and foreign exchange businesses, the sort of volatility has led to significantly increased volumes and generally wider spreads available.

In the precious metals business, a lot of banks. Great to be on the trading side. Not so much fun to manage in the fixed income markets. That's the tradeoff, I guess.

In the equity market making business, how close is that to getting to a scale in a you think you can reach? How close is it to becoming a more mature business unit?

Every time we sit down and plan a target or a budget for the next year, we always say this business has done so great. It would be great if we could have 10% top line growth and squeeze out something on the cost side. And that gives us a 20% pretax increase. And every year they do much better than that. And that's happened for six straight years. We keep thinking it's gotten to the point where it starts to flatten off. The areas where we have made very little inroads are internationally basically leveraging the flow and the trading we're doing in international stocks to international customers. All our customers -- largely, predominantly, US based. And you could argue there's a huge market out there that we haven't even tapped. And on the institutional side, we tend to pick up the retail flow that comes from the broker dealers. We see some business on the institutional side but relatively little.

With the changing landscape that may be a great opportunity for us to get into the market as the bigger players start to relook what they're going to focus on. There's scope to grow that business. Probably haven't done as great a job as and any threats from automation or any ECNs-- Again, every time over the last six years, we sit down, firstly, we choose business segments we think are small, complicated, need a lot of operational sort of high to them. Aren't easily automated. We try and stay away from businesses that can be easily automated. You never know how quickly technology will catch up. Haven't seen anyone make any inroads into that.

We've tended to use in-house technology to make our dealing with our customers more efficient and in fact that's enabled us to squeeze lots of efficiency. Technology has helped us be more official and drive greater volumes without any increase in overheads. We haven't seen any real threats in our niches from technology. And it's a tough thing to sort of predict. I don't think that is where people are focusing technology dollars at the moment is in sort of our niche businesses. It could happen. You never know.

Sure. The base metals trading business -- I know in the past you said you tend to do a little bit better in environments where prices are going up. Is that what's causing the slowdown?

Our experience thus far has been the rising markets have been better for us. Not because we go long. What we tend to find, we can find sources of metal that lag behind the price increases. On a wholesale basis. There's a huge spread involved. And that east sort of reversed now. Comes down faster than the retail side. What we would like is markets that move and allow us to get in between and make a kind of a decent spread a little more sophisticated. In the base metals, we took advantage of that on the way up. And that was explosive on the way up. And because we could hedge our risks, we could buy a metal way below market price and enhance our margins. That had been much more difficult.

I think our general view is the markets are probably over-reacted on the downside. We may find things starting to turn around again. In the meanwhile, we have a business that still makes money. And not as much money as it did last year. When those open up for us. You have market conditions which allow you to widen your margin and increase your flow. And market conditions that don't fit you. And it's not a great environment for base metals but that could change quickly.

It's part of the reason we're involved in multiple commodities. Lead is more clearly linked to the level of economic and industrial activity. And volumes are not going to be great in these kinds of circumstances. The precious metals are less clearly linked to the volume of industrial activity.

More linked to crisis.

Sort of trying to get a couple of uncorrelated revenue streams.

Okay. And in the fourth quarter in term of Asset Management, how much of the delta between this fourth quarter and last was due to clawback from the incentive you had accrued and any other that you might have to.

We have no more incentives. All gone in the fourth quarter up to September. And Brian will have the exact numbers.

About 2 million.

The clawback was less than the first quarter. We had a residual portion of performance fees and those all disappeared in the fourth quarter. The markdowns on our was the real swing factor rather than the drawback.

And can your just kind of discuss your capital position a little bit. Are you comfortable with the amount your current the amount you're currently leveraged? Do you need capital? What are your avenues for getting it you bought a few shares. The financial side.

Obviously, when you're sitting in the environment you are now, you look back and say what could we have done smarter? It would be fantastic if we were sitting in this environment having raised $200 million in equity and rolling out the business now. We could make massive inroads with more capital. We scaled our business appropriately for the capital we have. It is scalable. We think we could scale it to a much different capital base if we had capital available. In the current environment we don't want to. We still see tremendous opportunities to grow our business. And the market has opened up with all the big guys being carried out.

With a smaller capital base, we can probably get more done with customers. That probably wasn't possible six months ago. People could have expected us to put more capital up to support the business. I don't think that many people are doing it anyway. If we had another $ 200 million bucks, could we scale up our business, obviously. We're happy with the way we've scaled now. And pretty defensive the great opportunities for us to grow our business by reasonably large percentages. A lot of cash. Our banking lines are significantly underdrawn. If we found more activity, more customers or new business, we'd have the capital to do it tomorrow. We're very fortunate in the situation where were sitting as much capital and significant capital sitting on the sidelines. Very comfortable with where we are.

And repurchasing shares--

One other question you asked. We were aware of significant selling pressure on our stock. And it appeared to us that there was a potential for sale situation. And I think this happened in all the markets, but particularly in all the financial markets. As the prices I think people have been under pressure. To make a significant buy back of our stock and in fact had reached agreement to do that on a large block of stock because we have the capital sitting available to do that. We have restrictions in our convertible note. And when we got around to reading the fine print we realized we couldn't do that unless we reached an agreement with our note holders and that would probably require that we pay down some of the note. The effective cost was too much. Honestly, it was an opportunity for us to buy back and very unhappy we couldn't do it.

Thanks for you time, guys.

And we have another question from the line of Steven Schwartz, your line is open.

Hello. How are you all doing?

Good, and you?

A couple questions. You mentioned the sales that IAAC experienced. When you take a look at the largest shareholders, no doubt Leucadia been the largest shareholder and then you had Bears Capital. Which was a small cap money manager that owned about 11% of International Assets. My speculation that dumping that we've seen over the last couple months and all liked wasn't coming Leucadia or any insiders but probably Bears Capital was in all likelihood being hit with a lot of redemptions in the mutual fund. Is that could you verify that maybe that's where a lot of the sales was coming from.

It was neither of those.

I was looking more at the Bears Capital, realizing Leucadia wouldn't be doing any dumping in all likelihood.

I think the large insiders myself, Scott, and John, none of us sold any stock. Leucadia didn't sell any stock and all of the aforementioned parties have any interest in selling stock. We are not aware of changes in the Bears Capital holding. We're aware there could be other people though.

Okay.

Okay. I may be wrong. Certainly the information we have would indicate there's been no material change that we know of any way.

Okay. On the-- help me with the money managed. You were at 2.3 billion down to about 1.2 billion. And is that money that's being managed by Consilium does that also include the more recent equity Dubai investments? Is that part of the $1.2 billion?

Dubai is a trade finance fund, not an equity fund. I don't want to get into too much detail and confuse everyone. We have three subsets in our Asset Management division in Argentina. We're one of the largest money manager down there. The Dubai TRade Finance business has produced a bottom line for us. Unfortunately, haven't raised as much money as we would like and need to push that along. Consilium manages the vast majority of the assets but probably of all three sectors earns the lowest net fees out of those assets. High volume, lower fee revenue business. And it's a joint venture. We only get 50% of the net. That business is the business that has had significant redemptions. Very little redemptions in the other business of any magnitude.

And with --

Does that answer your question?

I appreciate the insight there. The pullback from 2.3 to 1.2 was always money conservatively managed.

It was daily liquidity funds, fixed income. These were European, Luxembourg registered funds distributed into Europe. And I guess in retrospect, again, everyone much smarter after the event. Our funds were daily liquidity funds and performing very well and sold largely to banks and banking institutions. And when the panic sort of arose that everyone was rushing for liquidity. We were the easiest things they could sell. It came in like a wall. No good deed goes unpunished. You try and give people liquidity and produce a good return. That means you're the first thing that gets sold.

That's correct. In that Consilium, American Express Europe was always a huge percentage.

That's what we're talking about. That's the business we're talking about.

Right, is that where the redemptions really came, from American Express where they might have made up a huge percent of those assets.

That business has now as of January 2008 was sold to Standard Charter.

The American Express?

Yes. American Express International of which this distribution business was part was sold to Stan Chart.

They were always a big percentage of the consilium managed money.

Overwhelming.

Are they now completely out? Is that the big right there?

No. We still have money there. But I mean it's decreased dramatically, and we still have some redemptions that we've got to deal with. Could go down further. People come back and certainly got their money out and got it out quickly. And our hope is they remember that. We just don't know.

I guess my question was American Express was such a large percentage. Was that basically where the redemptions came from them?

It wasn't American Express' money. The distribution and the salespeople were American Express are now Stan Chart. The people putting the money in were European Institutions. They were the end investors. It all came through the American Express/ Stan Chart Distribution Force.

Okay.

But the end investors were broad range of banks and institutions in Italy, Spain, Germany, and all over.

All right and then another question on the fixed income side, on the bond side, I noticed that on your website, when you look at the fixed income side, you tonight see that whole trading desk. Is that fixed income department still operational? Closed that?

If you read our Qs over the 2008 period, we clearly stated we were restructuring that business. The trading business became a very marginal business for us. So we moved into more of an advisory investment banking business. And that's how we've been configured for the last nine months. We do zero trading on the fixed income side. And this is a great environment to be in. But it over 2007, 2008 became a marginal business for us and didn't see any point in us allocating capital to that business. We pushed into a fee business. And it's a tough business. No one is putting capital into anything. We have a huge pipeline of transactions ready to go. It's tough finding investors to put up the money.

We're looking at four revenue sectors versus five that we've had in the past.

I'm not sure that's necessarily true. I think what we do have is three trading businesses and two fee generating advisory businesses. And I think the fee generating advisory businesses are not doing great in the current environment while the trading businesses are doing fantastic in the in the current environment.

Though I would say on the debt capital market side that in the current environment that business continues to be profitable for us, as an issuance business and we believe it will continue to to be profitable, largely as a result of the acquisition of gain vest now almost --

18 months ago.

They continue to be one of the largest pacers of asset backed securities in Latin America and that business is doing very well, producing a above bottom line for us. Yes, it is smaller in scale than some of our other activities. As a fifth business line, it's viable and we continue it will be.

Would that be the same area where a year or 18 months ago you brought out 25, $30 million debt offering in Latin and South America.

We've probably done total shares over the last 12 months of over $1.5 billion. It's a real business. The margins are fine. It's fees. But it doesn't use capital. And I think it could be a much bigger business if the environment were better. It's not a great environment for that business. It's a bull market product. The trading businesses are a volatility lengthen product.

That does it for me. Appreciate it.

Patricia, next one.

There are no more questions in the queue at this time.

Thanks very much.

Okay. Thank you too, gentlemen. This now concludes the conference. You may now disconnect.