Greenhill Q3 Loss Driven By Merchant Bank Woes

NEW YORK (Reuters) – Greenhill & Co (GHL.N), a merger advisory company viewed as having limited exposure to the credit crisis, reported a third-quarter loss on Friday, driven by the falling value of its merchant bank investments.

Compared with the big financial supermarkets on Wall Street that engaged in corporate lending and mortgages, boutiques like Greenhill were expected to thrive by emphasizing strategic advice rather than a big balance sheet.

Yet swooning markets reversed previously recorded gains and resulted in a $52 million decline in the value of its investment portfolio, which includes hard-hit companies like Exco Resources Inc (XCO.N) and Crusader Energy Group Inc (KRU.A).

“The results were primarily driven by expected market weakness in energy,” said Wachovia Securities analyst Douglas Sipkin, who told clients the company’s shares should fall amid the broader downdraft in financial markets.

Greenhill posted a third-quarter loss of $11.7 million, or 42 cents a share, compared with a profit of $35.3 million, or $1.25, a year earlier. Year-to-date profit fell 58 percent.

The loss disappointed analysts, who expected a profit of 30 cents a share. The stock dropped 4.2 percent to $57.12 in early trade on the New York Stock Exchange.

Advisory revenues fell by more than two-thirds to $37.0 million in the quarter, reflecting fewer completed assignments. Meanwhile investment reversals drove down quarterly revenue to negative $14.9 million from positive $119.4 million last year.

Chairman Bob Greenhill, a mergers and acquisitions pioneer on Wall Street, attributed the loss to the falling value of energy investments and a decline in completed deal assignments. Advisory revenue is typically choppy, with quarterly results affected by the timing of deal closings.

Looking ahead, Greenhill stood behind the companies in its investment portfolio and indicated the advisory business will benefit from the current market upheaval.

“We have been publicly disclosed as advisor on a substantial number of announced, pending transactions,” he said. “We also have a substantial list of undisclosed assignments, particularly relating to potential strategic transactions among major corporations and transactions relating to financial distress.”

The historic consolidation among the biggest U.S. banks, he added, should result in more M&A market share for independent advisers like Greenhill.

Greenhill engages in private equity investments in mid-cap companies along with its M&A work for big corporations. (Editing by Jeffrey Benkoe)