Penson Gets Tough on Risky Correspondents
May 4, 2009
Following a rollercoaster first quarter, Penson Worldwide expects its core clearing business to remain stable in the year ahead, despite its efforts to clean house of risky correspondents. And new businesses, says the firm, will eventually bolster revenues.
Noting meager first-quarter earnings of $1.7 million, founder and CEO Phil Pendergraft predicted on an April 28 conference call that earnings will reach $45 million in 2009--echoing last year's--on top of revenue growth of 3 percent to 5 percent. Dramatically reduced activity at futures subsidiary Penson GHCO in the first half of the quarter was tempered by a rebound in options trading, reaching 25 million contracts in March, said Pendergraft.
Penson's U.S. and Canadian securities correspondents increased to 258, up from 246 at the same point last year, and introducing futures brokers rose to 42 from 38. The implosion of clearing client Evergreen Capital Partners last fall prompted Penson to scrutinize customers; some were asked to leave and others saw their fees increase. That move fits "with the concept that there has to be an associated reward for every risk you take," noted Pendergraft.
Penson plans to convert 24 new correspondents over the next two quarters, according to Pendergraft. However, he added, the firm's total of 300 correspondents--down two from first-quarter 2008--is unlikely to grow much this year, given its ongoing efforts to eliminate risky clients.
New revenue sources are anticipated later in the year from initiatives including a foreign-exchange trading product for retail investors--now in beta testing--and Dublin, a dark pool that Pendergraft said will likely begin operations by early third quarter. Dublin will seek to match orders of Penson's correspondent customers, many of whom are active traders, and include "resident liquidity providers" to increase the matching rate, he added.
