MF Global Holdings' CEO Discusses F2Q 2012 Results - Earnings Call Transcript

Oct.26.11 | About: MF Global (MFGLQ)

MF Global Holdings Ltd (MF) F2Q 2011 Earnings Call October 25, 2011 7:30 AM ET

Executives

Jeremy Skule – Chief Communications Officer

Jon S. Corzine – Chairman and Chief Executive Officer

Henri J. Steenkamp – Chief Financial Officer

Analysts

Richard H. Repetto – Sandler O’Neill & Partners LLP

Howard H. Chen – Credit Suisse

Michael Carrier – Deutsche Bank

Roger A. Freeman – Barclays Capital

Chris Allen – Evercore Securities

Kenneth Worthington – JPMorgan

Rob Rutschow – CLSA

Ed Ditmire – Macquarie Securities

Niamh Alexander – Keefe, Bruyette & Woods

Operator

Good day, ladies and gentlemen, and welcome to the Fiscal Second Quarter 2012 MF Global Earnings Conference Call. My name is Tory and I will be your conference coordinator for today. At this time, all participants are in a listen only mode. We will be facilitating a question-and-answer session towards the end of today’s conference call.

I will now turn the presentation over to your host for today's call, Mr. Jeremy Skule, Chief Communications Officer. Please go ahead.

Jeremy Skule

Good morning, and thank you for joining our call. With us today are Jon Corzine, Chairman and CEO, and Henri Steenkamp, our CFO.

The information made available on this call contains certain forward-looking statements that reflect MF Global’s view of future events and financial performance as of September 31, 2011. Any such forward-looking statements are subject to risks and uncertainties indicated from time to time in our SEC filings. Therefore, future results of operations could differ materially from historical results or expectations as more formally discussed in our SEC filings.

The company does not undertake any obligation to update publicly any forward-looking statements. The information made available also includes certain non-GAAP financial measures as defined under SEC rules. The reconciliation of these measures is included in our earnings release, which can be found on our website or in our SEC filings.

With that, I'll now turn the call over to Jon.

Jon S. Corzine

Thank you, Jeremy, and thank you all for joining on our second quarter call. This morning, Henri and I will first update you on our financial results as summarized in slide three in our packet, and then we will pose you on the implementation our strategic plan, the status of our European sovereign exposure, and finally, I will offer a perspective on the path forward.

Let me begin by acknowledging that our September’s quarter’s results and actions were defined by the well reported stressed conditions experienced by global markets. Those conditions of hyper volatility brought on in part by sovereign risk including for the U.S., bank capitalization concerns and non-standard Central Bank actions undoubtedly slowed the translation of our strategic progress into financial performance. Without question, the quarter’s market environment was as difficult as any of I’ve experienced in my 30 plus years in finance.

Accordingly, we, on balance, reduced our principal exposures and our proprietary and client facilitation books, which in turn resulted in limited principal transaction revenues, but it also avoided any major trading losses. Year-over-year, principal revenues decline by $33 million, while commissions were relatively flat and net interest income was up.

Overall, our quarterly revenues totaled $206 million down from last year’s comparable of $249 million. I would note that after much review, we did opt to not recognize $26 million in a debt valuation adjustment.

Reflecting our intention over the last six quarters to reset our business strategy, there was however, restructuring charge of $10 million, negative, legal and financial adjustments of $22 million, and a non-cash deferred tax write-off in the U.S. and Japan of $119 million.

In aggregate, the above mention items generated a per share loss of $0.83 for the quarter. Henri will review the numbers in detail, but to summarize, the GAAP loss is $1.16 per share, while the adjusted loss is $0.09 per share. If we had elected the debt valuation adjustment option, the adjusted loss would have been $0.01 per share.

Regrettably, these results break the four-quarter string of increases in revenue and improvement in the adjusted bottom line. We make no excuses. These results must be reserved and at the close of my remarks, I will outline near-term actions we will take to do precisely that.

That said, on strategy, we have stayed focused on closing out the bulk of our initial restructuring actions, particularly those that will align our capacity with near and intermediate opportunities we see for delivering earnings. For instance, during the quarter, we restructured our equity business to focus on demonstrated capabilities and areas of competitive differentiation, specifically, commodities, consumer products and global policy research.

Our actions will reduce equity research and sales trading – sales and trading staff by more than 30% in Europe and Asia. We also completed the refitting of our mortgage, credit and foreign exchange businesses, unified our brand across all firm activities and advance the build-out of our multi-asset, multi-currency electronic platform design to meet demand we see from retail and professional traders for a single point of entry for our products.

The environmental conditions, while difficult, also provided opportunity. Over the quarter, we saw a significant expansion of our client base across most of our capital market and retail activities. The dislocations in markets and the deleveraging of competitors balance sheets expanded the number of underserved clients among medium sized financial institutions, commodity operators and professional traders. This opening allowed our redirected sales force to meet a growing market need.

Our client list are up net 7% quarter-over-quarter and as much as 25% from a year ago. Just as we’ve been able to expand our client base in this period, the opportunity to attract quality talent has also improved as has the terms on which people join. We anticipate the near-term benefits from a broader client base served by top producers will be substantial.

Additionally, the environment and the employment arrangements put in place with new hires has given us much needed flexibility with respect to compensation both in the quarter and as we go forward.

Specifically, as revenues fell, our total adjusted compensation declined 25% sequentially. In short, the strategic actions taken over the past six quarters are significant and position our firm to grow revenues on a reduced cost basis, under a less stressful market conditions, we are confident. We have build a substantial capacity for growth and earnings.

As slide four details, during the past 18 months, we’ve defined and articulated to stakeholders a clear strategic plan. We’ve substantially improved our capital and liquidity positions, while reducing our weighted average cost of capital and lengthened its tenure.

We’ve rationalized our compensation and incentive structure, allowing for great variability in costs. We put in place a team of senior leadership with the skills across markets, geography and control functions to execute our plan. We’ve diversified our revenues into higher margin commodities and capital markets activities without losing capacity in our traditional FCM, exchange rated futures and options business.

And lastly, except for the just completed quarter with its hyper volatility, we have demonstrated the capacity to grow revenue and EBITDA. We are confident, we are at the early stage in continuing this advancement.

Now let me turn to a subject, which is understandably clouded perceptions with respect to our progress, that is our repurchase to maturity sovereign positions, as noted on slide five. As we have pointed out over the past year in our disclosures and quarterly calls, we have taken advantage of the dislocations in the European sovereign debt market by buying short dated debt in European peripherals, and financing those securities to their exact maturity date, therefore, the term repo-to-maturity.

The spread between interest earned and the financing costs of the underlying repurchase agreement has often been attractive, even as the structure of the transaction themselves essentially eliminates market and financing risk. At the inception of these positions, we made the judgment that the securities we financed to maturity would repay given their high credit rating and short-duration, that is, all securities mature before 12/31/2012. And the later reinforced by the commitments of European and international institutions in supporting the solvency of the issue in the countries, again, in the timeframe of our exposures.

The full RTM Portfolio we hold, is seen on slide five. We specifically tiered the maturity of our holdings to reflect credit ratings at the time of inception and reassessed our risk based on the EFSF and IMS support programs that significantly enhance the probability and the ability of Portugal and Ireland to meet their obligations on schedule, again, within the context of their maturities, in Ireland and Portugal’s case, June 2012.

The positions in our portfolio of higher rated countries Italy, Spain and Belgium have also benefited from support from European institutional actions although not direct solvency packages. These same countries credit positions are now the subject of the ongoing public debates taking place regarding future systemic support from the European community, again, in the maturity timeframe of our holdings 12/31/2012, we expect any of the actions proposed to give additional support to an already strong probability and ability of these nations to meet their obligations. So, in short our judgment is that our positions have relatively little underlying principle risk in the timeframe of our exposure.

We continually reassess that judgment and are prepared to take offsetting actions if conditions or circumstances change. We’re not adding to this portfolio and we will allow it to roll off as the staggered maturities are reached. I would also note that we carry little exposure to these countries banking systems and no derivative exposures dependent on a country’s credit worthiness.

In addition, consistent with prior quarters there is no mark-to-market associated with the derivative value of these positions. On a personal note, our positions and the judgment about risk mitigation steps are my personal responsibility and a prime focus of my attention.

Let me close out my remarks by noting on slide six, important elements of the pathway forward considering the likelihood of our phasing and continued low interest rate environment for an extended period and growing capital requirements for some of our core activities. While I only outline these actions, each one of these initiatives is being vigorously and actively at the moment being pursued as a means to generate capital and earnings in the near term.

Obviously, confidentiality limits that extend to which I can detail the actions, but let me be clear. We continue to believe the long-term return profile of an investment bank is attractive and we’re committed to our strategy even as we must balance our immediate needs to focus on preserving capital and liquidity while generating near term earnings. In this context we are reviewing options that allow us to scale our SCM business, develop a faster entry into investment banking and close out our search for an investment manager.

We are also revealing our options on increasing capital through asset sales of non-core holdings and we will continue to examine the reallocation of both human and financial capital into the most efficient geographic structures. As we move forward, we will also continuously look to manage our cost for lowest possible level. We will redouble our efforts to bring compensation and non-compensation costs inline with our previously stated objectives including by further reduction and headcount and stringent expansible controls.

Let me close by noting that while we recognize and respect the challenges of the environment, we also believe it is one with opportunity, filled with opportunity because I’ve noted previously in the stressable time we’ve husbanded our capital and strengthened our liquidity but we’ve also added outstanding producers and feel we have an opportunity to do more of the same in the near term. With a modicum of market normalcy, I believe we will deliver for our shareholders in the quarters ahead.

With that, I’ll turn it over to Henri for the numbers.

Henri J. Steenkamp

Thank you, John and hello to everyone. As John mentioned this quarter was challenging on multiple fronts. July and August are seasonally our slowest months, which means Q2 is normally our slowest quarter. In addition hyper-volatility caused many market participants to step away resulting in reducing our risk appetite and our client facilitation and principal trading areas. That said, during times of market stress you have the opportunity to test many aspects of your businesses including risk systems, processes, people and our capital and liquidity assumptions as well as operational control.

While our financial performance may not have demonstrated our full potential, I can tell you with confidence that our functional areas including risk, operations and treasury performed exceptionally well. Our areas in bad debt as a percentage of net revenues, still remain inline with expectations at 1.7% for this quarter and is a validating metric.

But, let’s begin with the drivers of our financial performance this quarter starting with slide eight. As most of you are aware, our commission revenue is primarily driven by exchange traded derivatives volumes and the rates charged for executing these trades. On a sequential quarterly basis the exchange composite volume was up modestly by approximately 3% sequentially but significantly up 28% from the same period a year ago. As you can see from the chart on the right the good news is that our volume outpaced the composite both sequentially and year-over-year by 5% and 41% respectively. However, our net commission revenue this quarter was down 3% sequentially and down 4% year-over-year.

So, how does hyper-volatility change the mix of volumes and translate into commissions? As we have seen in past periods of market stress like 2008, volatility spikes tend to attract lower margin and professional and algorithmic traders to the market, while driving away fundamental participants such as asset managers and retail. The former, represents the lowest margin client segment and that is why you see commission growth lagging volume growth this quarter.

You can also see this increase in volatility on the next slide. On slide nine, on the lower right pie chart you can see that over the past year roughly 80% of our principal transactions and related interest revenue came from either equities, commodities or fixed income. Moving back to the upper left you can see the volatility or VIX index, which increased 170% during the quarter. As the VIX moves in the 40s, certain participants have historically backed away from the market. And we certainly experienced that this quarter. In addition, the above volatility impact on volumes was further exacerbated by the summer months.

The chart on the upper right is the CRB commodity index, which dropped 6%. Spreads are wider in upward moving markets as compared to downward moving ones. So, while volatility across several commodity asset classes, much of the movement was to the downside, which can limit spread opportunity. The chart on the bottom left shows the LIBOR OIS spread, whose movement usually merits our overnight lending spreads and our fixed income matchbook and is a general indicator of fixed income spreads. These are still at historical low levels and the impact of these extended periods of low levels are being felt across the industry even though these spreads actually widened in the quarter.

These metrics combined with asset correlations reaching historical highs, limited our risk appetite in the quarter and in turn our revenue opportunities. As I review the individual details of net revenue for the quarter on slide 10. To begin, at row nine, total net revenues in column A were $206 million. This is down 35% from the sequential quarter and 14% from the same period last year. As I discussed in the previous two slides, the drivers of this decrease are slightly lower commissions revenue together with this lower market-making principal transaction revenue.

This quarter's principal transactions also did not include the seasonal structured equity transaction that benefited the firm in the previous quarter nor additional REPO to maturity transactions. Column B represents our commission revenues of $107 million. Total commissions are down 4% from the same quarter last year and down 3% from the June quarter. While we experienced higher volume over both periods commissions were lower due to increased DMA activity, interaction professional trader volume and the continued reduction of high pump, low profit execution only volumes.

The yields of $0.18 this quarter compared to $0.26 last year and $0.19 for the sequential quarter. Both decreases are driven by mixed changes as previously discussed. In column C our principal transactions and related interest. These are revenues from all of our client facilitation and principal activities and our core product areas including fixed income, energy, metals and foreign exchange. We saw pockets of strength in our mortgage and commodity areas and early signs of success in foreign exchange.

However our broader fixed income business was challenged by the environment. Principal transaction net revenue was $31 million, down significantly from $150 million in the sequential quarter and from $64 million last year. The decrease from both periods reflect the factors that I just mentioned as well as prudent pull back in our risk appetite that John discussed earlier.

Moving on to column D is our net interest income from client balances and associated yield. In row 11, the average assets are $15 million, which is $1 million higher than last year and level with the June quarter. In the row below this, row 12, is the net interest income yield of 127 basis point. This is 22 basis points lower than last year and four basis points higher than the June quarter.

The yield this quarter was impacted by two appearances. First, we recognized a gain of $16 million from the sale of a held to maturity portfolio as the U.S. downgrade by S&P provided opportunity to reassess the portfolio and take some profits. Our ongoing portfolio management that we do on a regular basis also had an offsetting unrealized loss related to other positions. Excluding the gain, our yield is a 119 basis points.

Secondly, you will recall during the last quarter, I mentioned that we’re reducing duration that well, slightly lower yields were expected. Thereafter, the Federal Reserve also announced the interest rates would not increase for at least two years, and we immediately began to extend duration again.

At September 30, we have approximately $8 billion or 51% of our average balances invested in longer-dated maturities, this compared to 64% last year. The average maturity of the extended portion is 27 months compared with seven months a year ago. The branded portfolio of $15 billion now has an average duration of 15 months, up from 4.5 months last year.

So now that we have summarized the revenue, let’s take a look at the cost side of the business on slide 11. The adjusted compensation to net revenue ratio reflects the continued focus on changing the internal culture to one that is centered around a pay-for-performance and one firm philosophy. This quarter, the comp ratio was 62%, up compared to 54% in the sequential quarter, and up from 56% in the same period last year. Although, the ratio was up sequentially, the absolute dollars was down $42 million. This despite higher comp revenues being more of the actual mix of total net revenues.

There were several drivers of comp this quarter, the first was business mix. Upward pressure on the comp ratio resulted from a higher portion of revenue from higher payout, commission based businesses. In addition, the absolute size of net revenue also excreted upward pressure indirectly as fixed costs make up a larger part of the ratio.

There was downward pressure on the ratio from the implementation by us over the past year of a discretionary compensation policy, linked to both the productivity of individuals and profitability of the firm overall. We exerted that discretion this quarter. Looking ahead and depending on revenue levels, we still anticipate the comp ratio will be in the mid-50s in the near-term, but this will be dependent on both the absolute revenue levels and mix of revenue.

Just look at the bottom chart, which shows non-compensation expense. We are working very hard to find the right balance of investing in our future while delivering shareholder returns. We feel that investing in our infrastructure is important to our growth, but may need to be further prioritized to our initiative. This quarter non-comp amounted to $113 million, this exceeds our stated expected amount of $110 million, but there were a few one-time items this quarter, which contributed to the high amount, and this includes the following.

A $1 million increase in bad debt expense considering how volatile the markets were this quarter, this demonstrates a continued tight risk controls and client’s activity. Advertising expense of $2 million associated with the alignment of our brands, changing [Lynnwalder] to MF Global and new advertising and direct marketing campaigns. And $1 million associated with final move costs in London and other regions.

Excluding these three items, non-compensation expense would be $109 million, which pulls within our stated expected amount. For the same period last year, non-comp expense was $89 million. When evaluated the increase from the prior year, it is important to understand where we were as a company at that point in time. John had recently joined, we were reducing headcount, we did not yet have the strategy solidified and we’re putting all major spending initiatives on hold.

We have always stated that we would postpone growth if necessary. However, the impact of any actions would always lag. We are hesitant to taking actions that might significantly constrain growth as we are squarely in a strategic build out mode with a clear vision of what we want to be, and an understanding of how we intend to get then.

Our strategic build out in key businesses has all the cost increases you would expect to see. Increases in market data usage as we hired and strengthened our people and product offering, investment in our parent technology infrastructure, and successful consolidation and integration of our brand, sales and marketing efforts.

Going forward, we are taking steps to contain our non-compensation spend in areas that will not limit the opportunities in front of us. We have introduced cost spending initiatives that create narrow filters for acceptable travel and entertainment expenses, and have begun to reevaluate and further prioritize our infrastructure projects. Despite the growth increase this quarter, these cost cutting initiatives combined with us realigning our equity business and other restructuring actions, lead us to expect non-compensation to remain in the $110 million range for the foreseeable future.

I would also like to address our tax rate going forward. This quarter we recorded evaluation allowance against previously booked deferred tax assets in the United States and Japan. This has no cash impact this quarter.

So going forward, we will not be recording additional deferred tax assets in these countries until we start consistently generating income within these jurisdictions. These deferred tax assets can still be utilized and be cash flow positive in the future.

From a P&L perspective, income from these countries will not have a future tax impact, dropping down straight to equity. This will skew our tax rate in the near-term, lowering our estimated annual effective tax rate to about 25% in the countries where we have no valuation allowance.

So for example, if we own $100 in the countries where we have no valuation allowance, then the effective tax rate will be 25%. If we own an additional $100 in the U.S., there would be zero tax expense and the effective tax rate globally would reduce to 12.5%.

Let's now move on to our earnings performance in the quarter, focusing on the GAAP to adjusted reconciliation on slide 12. We foreshadowed last quarter, there would be several adjusting items this quarter. To start with, we always have the anti-dilutive of fully diluted number of shares. This was an effect of $12 million, or $0.24 per diluted share.

We also had evaluation allowances, which reflected the reversal of deferred tax assets of $119 million or $0.62 per fully diluted share. Following all other restructuring activities undertaken this quarter and previously, this review and reversal was done according to the accounting rules.

There is no cash outflow this quarter, and the benefit does not go away. We can utilize future earnings against this and reduce cash taxes. As long as the valuation allowance exists, future results in the U.S. and Japan have no tax impact on the P&L.

Next, we had several restructuring charges of $12 million or $0.06 per fully diluted share, which included a realignment of our equity division, particularly in Asia and Europe, the closure of certain offices and additional severance and stock compensation charges. We estimate that these decisions will prospectively save the company approximately $20 million in comp and non-comp on an annualized basis. Included in the restructuring bucket, our charges related to the buyback of our 9% convertible note this quarter amounting to $16 million or $0.08 per fully diluted share.

Lastly, the other category includes three items totaling $0.07, a legal settlement of $6 million or $0.03 per fully diluted share, impairment of goodwill and intangibles of $5 million or $0.02 per fully diluted share, and finally $3 million or $0.02 of related compensation write-offs.

However, capital market transaction for this quarter improved our capital and liquidity positions. Let's first look at our strengthen and capital structure on slide 13.

I'm proud to say that our capital structure has never been stronger. During the quarter, we successfully raised $325 million in seven-years senior convertible notes, entered the unsecured debt market for the first time by raising $325 million in unsecured five-year notes, repurchased $109 million of the higher cost 9% convertible notes and also paid down $100 million of our revolving credit facility.

We now have more staggered maturities and greater permanency of capital. Importantly, we have extended duration of our capital structure to 2014, and beyond to ensure we are protected from the deluge of refinancing in the market that will be needed over the next two years. We have also paid down some of our revolver so that it is available to us for liquidity purposes and not used as permanent capital.

You'll also see at the bottom of this slide, how the tangible book per share, even after the write-downs in this quarter is still above $7 at $7.08. Based on our liquid short-term balance sheet, we feel good about the quality of this tangible book value. As an example, and I refer you back to the sovereign exposure that John discussed earlier, as well as what you saw in the slide presentation posted on our website yesterday. Even under what could be described as a worst-case scenario reflecting significant macro events, limited mitigating factors implemented by us and forced sale actions, a $100 million to $200 million credit default charge would reduce the tangible book value by only about $1. This means that even after this charge, net tangible book value would still remain above $6.

Let's look at slide 14 to see the current state of our liquidity. The company has $2.5 billion in total capital. We have $1.5 billion of required and nearly $500 million of excess capital sitting in regulated entities. We also have over $260 million of free cash in our financial holding company. If you move down the page, we have $1.3 billion in available cash funds from liquidity facilities, and we also have $1.7 billion of intraday liquidity in non-segregated planned payables and collateral. This adds up to total available liquidity of $3.7 billion, up significantly from June 30, 2011.

So in summary, despite these uncertain and volatile times, we feel good about our capital structure and liquidity position as well as the strategic direction and progress against the plan.

With that, I’ll now turn the call over to the operator so we can take some questions.

Question-and-Answer Session

Operator

Absolutely, at this time we will begin our question-and-answer session. (Operator Instructions) We will take our first question from the side of Richard Repetto. Please go ahead, sir.

Richard H. Repetto – Sandler O’Neill & Partners LLP

Yeah, good morning, Jon. Good morning, Henri.

Jon S. Corzine

Good morning, Rich.

Richard H. Repetto – Sandler O’Neill & Partners LLP

I guess, Jon, my question is on the principle trading. I understood you are pulling back and preserving capital, I’m just trying to see one, is there any can you foresee any sustainable impact like, as you pull back client facilitation, could there be an issue, would be or not, be in there in the ball for period as well.

Jon S. Corzine

Listen Rich, I think that as I stated in my remarks, the third quarter, calendar quarter our second quarter was probably the most volatile period I’ve ever experienced in sort of 30 years of activity in markets. That wasn’t around in 2008, things that took a time out for other purposes, but the conditions were really not appropriate for being aggressive risk takers, particular after the early dislocation in August.

We’ve already seen markets, while not normalizing providing a little more continuity, and we have begun on a step-by-step basis to return to more normalized, certainly client facilitation activities, and we do see the kind of proprietary trading opportunities that we want to participate in. Some of that volatilities come off, you don’t have to express what’s happened to the bics and how it’s moved from 40 down into the low 30s to up 20s. A lot of changes have occurred, and we will be back in that business of building up our client facilitation business, with a responsible limited position, taking role in our proprietary trading.

And I think we’ll be back on track in the way that we had been building over the previous four quarters until we got to, the hyper volatility that we saw particularly in August and September.

Richard H. Repetto – Sandler O’Neill & Partners LLP

Got it. Okay, it’s very helpful. And then my one follow up would be, with the Moody’s changing in grade, let’s say yesterday, it appears, that they almost set you up in some ratios they’ve put out that were potentially unachievable even if you didn’t have these volatile market conditions. And it appears like the bar, what they’re setting there for further evaluations of grade, sort of just unrealistic, could you comment on that, I guess, it might seem as right or not?

Jon S. Corzine

Well, we are disappointed with the action quite obviously, we’re going to everything in our power to get back on that four quarter trend that we had up until this hyper volatile period in the summer. We think we can grow our earnings, we’re confident of that, and we’ll have to leave to them their judgments with regard to the conditions that they would lay down.

We believe that, with the steps that I outlined, and in the pathway going forward about producing additional equity, maintaining our liquidity and capital, and returning back to full utilization of our franchise. We will be back on track generating the kinds of revenues and bottom-line earnings that should improve our credit position over time.

Richard H. Repetto – Sandler O’Neill & Partners LLP

Okay. Thanks very much, Jon, that’s very helpful.

Operator

Thank you, and our next question comes from the side of Niamh Alexander from KBW.

Niamh Alexander – KBW

Hi, thanks for taking my questions, and just on the DTA, help me understand is there more there that’s potentially could take another hit because and straight to the tangible book. And I guess as part of that and, with the DTA write-down, is this kind of the big, the last of the restructure of it, but this kind of (inaudible).

Henri J. Steenkamp

Yeah. Niamh, it’s Henri, how are you? So we wrote-off our U.S. and Japan DTA as I mentioned, the U.S. was the bulk of it and that means that, and you will see it in the queue, and you will see it from last quarter, the only DTA we have left is in the UK, which is around $11 million. But the UK is profitable, and has been last year and continues to be. So we have no expectation of any consideration of a write-down on that item.

Niamh Alexander – KBW

Okay. Thanks. And my follow-up question if I could, the debt, Henri you mentioned you are proud of your capital structure, I guess, you got the debt down, and just before the environment change which was good. But your leverage ratio here is ten times as your debt-to-EBITDA. And we saw you drill down on your revolver at the end of the quarter. Help me understand, is there a potential need to raise equity in terms of other capital structures, we don’t think so. But help us understand if you’re talking about scaling the FCN if it has still that level of debt that you’re comfortable with?

Henri J. Steenkamp

Yeah, you’re right. I think as we said, we feel pretty good about those capital raising actions during the quarter, I think both the size and the timing. I think our objectives originally were to extend duration and lower weighted average cost of capital. And we took those steps. A year ago, we had $500 million odd due in 2012 and we now have mid 200s due in 2014 and that’s the first maturities. We took some action, repaid revolver, repaid convertible notes. And as I said, the objective remains the same to continue bringing that weighted average cost of capital down recognizing our debt level.

We paused for a short while this quarter. We felt good about having the liquidity in these volatile times especially going over quarter end. And we consistently on a day-to-day basis assess liquidity needs and sort of being more cautious in our approach to your comment on the revolver as well how we sort of day-to-day, we draw in a day and repay with a clear end date, couple of days later as you mentioned. But I think, the way to think about is that, we will resume utilizing this capital as soon as market stabilize.

It’s a conservative approach at the moment, but we can effectively make this capital that we have work through numerous options, which is one, further debt reductions in line with our original objectives that we have spoken to you about, as well as some of the more strategic actions that we’re working on and looking at that Jon outlined in the path forward.

Jon S. Corzine

There are two points that I want to make. First of all, if you look at slide four, we have been on a consistent pattern over the 18 months that I’ve been leading the firm to strengthen our capital position, lower its cost, but extend its tender, including by the way a public equity offering itself.

We’ve done a lot of work to put ourselves into a much more stable position with a lower cost of capital than what we had 18 months ago. We will continue to be opportunistic in that manner. But the primary means for us going forward is, as I outline to capitalize on some of the valuable non-core assets that we think we can monetize, and look to capturing the value in some of the things that we’ve talked about in other calls.

The insurance settlement and other things that will drop directly to the bottom line in building up our capital. And the second observation is, we were very cautious at the end of the quarter with regard to the draw, felt to us like September 30 was more like a year-end period in time.

And so it seem perfectly logical for us to make sure that we had all of the potential liquidity that we might need over that period of time and we repaid it very quickly. That’s what a liquidity facility is for. We intend to use it in that context going forward. But we are in a much, much stronger liquidity position as Henri outlined.

Niamh Alexander – KBW

Okay. Thank you.

Operator

And our next question comes from the side of Howard Chen from Credit Suisse.

Howard H. Chen – Credit Suisse

Hi, good morning, Jon, good morning, Henri.

Jon S. Corzine

Hey, how are you Howard?

Howard H. Chen – Credit Suisse

Thanks for the incremental disclosures. Henri apologize if I missed this, but on slide 10 of the earnings pack, are you able to break out the negative 0.7 million, between market making losses and maybe mark-to-market write-downs related to the Europeans sovereign portfolio?

Jon S. Corzine

There is zero related to the European sovereign portfolio. I think that 0.7 is just reflective of in our fixed income business as we discussed previously, you know, you have when you own a security you might have mark-to-market movements and also then earn interest on it. And you’re looking at the total returns, so that’s just a mark-to-market on the fixed income business, but to be clear it is zero related to the European sovereign.

Howard H. Chen – Credit Suisse

Okay. Great, thanks for clarifying that. And then all of what you say makes sense with respect to the improved capital and liquidity profile of the firm. I know you’re disappointed by the downgrade yesterday, but just given the action, I think it’s an important question to ask, for any help in framing really how much of your FCM business and non-FCM business could contractually be done, if you are downgraded to non-investment grade status. I was just wondering if you have any thoughts on that?

Jon S. Corzine

First of all, I don’t want to speculate on them. We have had a very positive response from the clients in our conversations that we’ve had over the last 24 hours or I guess it’s a little less than that at the stage, but yesterday afternoon and first thing this morning and around the globe. That said, I think I made it very clear that we would look for ways to be able to bring scale to our FCM business inside the context of the evolving regulatory structure we had already been examining means to do that and we will continue on that process. We’re vigorously and actively examining options that will allow that to get to scale under any conditions.

Howard H. Chen – Credit Suisse

Thanks, Jon, again I know it’s a difficult question, but I appreciate the thoughts.

Operator

Thank you and our next question comes from the side of Michael Carrier from Deutsche Bank.

Michael Carrier – Deutsche Bank

Thanks, guys. And maybe one question on the cost side. So, it sounds like with the equity restructuring I think you mentioned maybe $20 million on the annual cost basis, yet it seems like, you know, guidance wise at least on the non-comp side still, you know, in line with the past expectations. So, I just want to make sure I’m reading that right. And as the reason that most of the cost will be on the comp side, so just, we’ll see it in the comp ratio but not necessarily on the non-comp.

Henri J. Steenkamp

Correct. There is a portion of it in non-comp but I think as I mentioned in my remarks on, I tried to, it’s been quite a bit of time on non-comps to help you guys feel the ins and outs. There were a lot of items in this quarter worth mentioning but there were a couple of one-off items. You take those out, you’re back in within the range and in addition to us assessing everything that we’re doing we are also busy with some spending initiatives to further reduce non-comp. So we still feel very good about the 110 and might actually drive that, try and drive that lower as some of the initiatives expand.

Jon S. Corzine

Under promising and over delivering.

Henri J. Steenkamp

Yup.

Michael Carrier – Deutsche Bank

Okay. And then maybe one follow-up just on the Moody’s action. So, if I think of what they’re focused on and what you guys have been focused on, it’s improving our earnings and then I think for, in they’re perspective just the overall leverage ratio, the firm including the REPO book. So, if I think about, let’s just chop up the earnings. No one’s earnings have been good this quarter, the markets were extremely volatile but if we get past that and we get to a relatively normal environment then we can get that or put that in a box. On the leverage side, if you’re still out like 30 times and they’re focused on that and maybe some of the other agencies out as well, I guess one is, can you take down that REPO book over the next quarter or so.

It doesn’t seem like there is a lot of revenues or earnings in this environment. I know, it’s client relationships and you got to be in the market longer term in order to make traction, but I guess how do you balance that and is that an option or kind of sticking to growing the capital and then also selling from the non-core assets?

Jon S. Corzine

It’s great question, Michael. The reason that we carry on average slightly higher numbers in our leverage is because we are running both an FCM and the seeds of a broker dealer. If you look at our adjusted assets, once we tried to argue, level 3, level 2 assets, we are actually very light relative by comparison to other competing institutions. We are down in mid single digits 5%, 6% of adjusted assets. But because we carry client balances and we have this match book, we will have to make some adjustments in one or the other or some combination of both.

I think I’ve given you some indication that we are looking at one way of dealing with the FCM, and we can take proactive views with regard to some of the steps that we have in our financing books. But you hit the nail on the head, we are primary dealer, we need to be able to finance not only ourselves, but our clients on a regular basis, and so if you break off those dialogs, those points of contact, you can see those dry-up and not be available when you do need them. So we have to come at this from a dual standpoint and that’s what I’ve tried to indicate to you, we are vigorously and actively pursing.

Henri J. Steenkamp

And the liquid short-term nature of our balance sheet hasn’t changed and I don’t think we have referenced it, but we still have zero level 3 trading assets consistent with prior quarters at this stage.

Howard H. Chen – Credit Suisse

Okay. Thanks guys.

Operator

Thank you and our next question comes from the side of Roger Freeman from Barclays Capital. Please go ahead.

Roger A. Freeman – Barclays Capital

Hi, good morning. I guess, just to come back to capital for a second. Between you talked about Moody’s, but layering also they report that FINRA had a booster capital back in August. I guess the question is just taking into those two together and they are obviously concerned about them in Sovereign Holdings, what are you not able to clarify for them, that’s causing outside firms to be so concerned and to sort of tied to that, what kind of discounts actually are being applied in repo transactions in these sovereign securities right now?

Jon S. Corzine

Let me start with the FINRA and I think it is just important to clarify that FINRA wasn’t dealing with any shortfall, and they weren’t dealing with an issue that they perceived. They were dealing with an actual regulatory reinterpretation of the haircuts that they apply to these positions, and so very mathematical calculation.

It started with discussions that we mentioned with them in August and they advised that they are effectively amending or modifying the treatment of European sovereigns in relation to asking, applying a capital charge. Affirms that just a mathematical it increased on their capital, they are set to re-file our focus for the previous month, so the July filing reflected effectively a retroactive look back based on the regulatory interpretation.

From our perspective, we weren’t really suddenly finding a shortfall, as I think one reference was made as well. It was, as soon as we assuming really before the event concluded, we had already ensured that the sufficient capital within that broker dealer to deal with that sort of the new regulatory haircuts they’re imposing on it.

And so, from our end, we look at it as if the regulatory interpretation had been applied prior to July, our July position could and would have been in excess. And so, it’s really just a sort of reinterpretation of the actual capital charge so…

Henri J. Steenkamp

If we had been operating under the certainty that we needed to confirm to the interpretation of the haircutting charges, we would have met those regulatory capital charges by the structuring that we were able to do within days. Just the matter of we were operating against a different interpretation of what those capital charges were not, because we didn’t have the capital we just organize differently. We rearranged how we utilize the capital within the group and met and exceeded by significant amounts. The charges that was within those interpretation, and that’s their both right and responsibility to access if they choose. But we were able to meet that and would have been able to meet it at any other time that that interpretation have been brought about.

With regard to the repo-to-maturity marks, I think we have mentioned to you in this call and on our disclosures on a regular basis that were required to read it as a derivative valuing both sides of both the asset and the liability, and we can’t take profits on the recognized profits because you will never realize those profits. They have been recognized upfront, but you would take mark-to-market losses if that derivative was marked to a loss. It has not been in any of the quarters that we have the position on. And we are very conservative, if you will, in marking-to-market the positions.

One of the advantages of this position it is in the short dated maturity. This is not two-year, not three-year, not 10-year, not anything other than treasury bills in the underlying securities and the very short dated coupons of the identified countries. And these markets still have pretty substantial liquidity particularly with respect to Italy, Spain, and Belgium.

Jon S. Corzine

And Roger, I think I just add one more thing. I think whether it’s the FINRA item, whether it’s haircuts on our Repo Financing et cetera, we are not seeing any actions that are specific to MF Global in relation to capital or haircut. In general I think there is obviously a lot of stress in the market environment, which reflects things like regulators reinterpreting capital charges on European sovereign for example, but none of any changes that we’re seeing specific…

Roger A. Freeman – Barclays Capital

Okay, thanks. Just on the haircuts I was just interested in what is the average haircut being applied in these repo transaction?

Henri J. Steenkamp

You mean with regard to the regulatory haircuts.

Roger A. Freeman – Barclays Capital

No, just the trading haircuts, traded discounts to (inaudible).

Henri J. Steenkamp

Well, first of all…

Roger A. Freeman – Barclays Capital

No discount?

Henri J. Steenkamp

The largest single position happens to be 12/31/12 CTS/ADs, which is a treasury bill in Italy and it’s trading with no coupon trades at some place in the range of 95.25.

Jon S. Corzine

But Roger I think from a haircut perspective it depends on the rating and it depends on the maturity and so I’d say somewhere, with regard to capital. Yeah, somewhere between sort of 0.5% and probably 2%.

Henri J. Steenkamp

And just to give you one other example 10/31/2012 Spanish bonos, which happen to be coupon or actually trading above par. I think it’s not indicative of expectations in a market place of the full.

Roger A. Freeman – Barclays Capital

Well that was my point, the market is not suggesting these short term securities are afraid?

Jon S. Corzine

Yeah.

Roger A. Freeman – Barclays Capital

Thanks a lot.

Operator

Thank you. And our next question comes from the side of Chris Allen from Evercore Assets.

Chris Allen – Evercore Securities

Good morning guys.

Henri J. Steenkamp

Good morning Chris.

Jon S. Corzine

Good morning Chris.

Chris Allen – Evercore Securities

The disclosure you provided yesterday was very helpful and the last quarter the European sovereign position accounted for about 12% of revenues. I’m just wondering how much did they accounted for this quarter and just overall how much revenues are driven by proprietary trades, now principles proprietary in terms of taking the other side of customer positions, but actual pure prop trades for MF?

Jon S. Corzine

Yeah, the RTMs for this quarter was very low-single digits. I mean as I mentioned in my remarks, we basically didn't do any additional RTMs. So very, very low-single digits and then I think from our principal trading plan facilitation as we took the step back on the principal trading side, I think most of our revenue there related to client facilitation this quarter.

Chris Allen – Evercore Securities

Almost entirely?

Jon S. Corzine

Yeah, almost entirely.

Chris Allen – Evercore Securities

Yeah, okay. And then sort of keep going back to Moody’s, but have they given you a clear indication of what you need to do either in terms of profitability or increased capital in order to stabilize the outlook? And if so how much is dependent on actions you can take and how much is dependent on the environment improving?

Jon S. Corzine

Yeah, I mean we obviously have been working with them. I would say they haven't given that amount of clarity as you outlined. But having said that, we are working with them in their assessment because what they're looking at is not just quantitative, I think numbers that they referenced in their report that we spoke about earlier, but also qualitatively some of the path forward steps that we’ve started. Walking through with them and some of the strategic actions we’re thinking about.

Chris Allen – Evercore Securities

Great. Thanks a lot, guys.

Operator

Our next question comes from the side of Ken Worthington from JPMorgan.

Kenneth Worthington – JPMorgan

Hi, good morning. To follow-up on Roger’s question, you reported excess capital of $342 million at the end of last quarter. Why were you not able to kind of use that capital to meet the FINRA, the change FINRA requirement? And I guess how should we incorporate your concept of the concept of excess capital going forward?

Jon S. Corzine

Ken, that is actually exactly what I suggested in my answer and how we responded to the changed interpretation that we were required to meet by FINRA. We had excess capital in many different other locations. Matter of fact, you heard me say in our going forward that we’re going forward pathway, we want to optimize the efficiency and allocation of both human capital and financial capital, these steps took some of that excess that was located in some elements of our group and we’re able to move it easily into our regulated entity in the U.S.

Yeah, and that’s exactly right, it’s location, right Ken. So FINRA was very specific to incur U.S. broker dealer. The excess is spread all around the world in various entities to John's point and they can’t go back in time and change the location back in time. But once you know and once you can plan, you can use that flexibility.

Kenneth Worthington – JPMorgan

Okay.

Jon S. Corzine

I think all financial institutions will have to go through a reoptimization of how they allocate both capital and liquidity in the new world that we are evolving to on regulation, not only within countries but across the globe and we were able to really quite facilitate to be able to move the capital within the group to meet the needs.

Kenneth Worthington – JPMorgan

Great. And then on the FCM, how big is the FCM now as a percentage of our normalized revenue or if there is a better way to size the FCM? Your business mixes continues to evolve and I just wanted to kind of reground myself on how meaningful the FCM business still is for MF?

Henri J. Steenkamp

I would say probably the best sort of measure and it's not perfect, but it's probably the information we give you when we breakdown our net revenues and commissions, principal trading transportation in net interest. And the way to sort of think of it is most of the commissions or more than half of the commissions and then the net interest really relates to that Futures business. And so you can see how it sort of changes on a quarter-to-quarter basis in the info we present you.

Kenneth Worthington – JPMorgan

Okay, excellent. Thank you very much.

Operator

Thank you, and our next question comes from the side of Rob Rutschow from CLSA.

Rob Rutschow – CLSA

Hi, if I could just follow-up on that previous question. The DTA, I guess presumes your U.S. business has been in a loss position for three years. And so I'm trying to figure out if the FCM has, at these interest levels is profitable as a stand-alone entity?

Jon S. Corzine

I tried to make this point in my remarks and I’ll say it again, is that the low interest rate environment for a long period of time makes the FCM on a standalone basis, a much harder business to be successful, that’s one of things that I have said repeatedly why we have to diversify income sources and we have been working and almost from the moment I stepped into MF Global to make sure that we had more than one source of income, and further more the FCM is and has been for very long time under commission pressures that are normal in the marketplace and its gotten more serious in the context of the high frequency trading algorithmic trading, which really is undermined even some of the commission structures that we have.

So we understand that when you don’t have an upwards sloping yield curve, the FCM will be a much more challenged business. On the other hand as I think several of you have written, the FCM is very much a call on interest rates and probably one of the closest ways to develop client relationships that you can have with regard to building your business more broadly, that’s why think the synergies of having the broker dealer in conjunction with the FCM are important. That all said, we clearly understand when the federal reserves says its not changing interest rates or short-term interest rates for two years, we need to vigorously and actively pursue strategies that will allow us to work our way through that and that’s exactly what I try to outline in the pathway forward.

Kenneth Worthington – JPMorgan

Okay, so I guess my follow-up would be one, are there any sings of shakeout in the U.S. market in terms of some of the smaller FCMs and then two more generally can you talk about what you are seeing in terms of the number of clients in your various segments and whether that number is growing and if so where?

Jon S. Corzine

I try to make the point that one of the real positives in the current environment is that access to clients is probably never been better, and the access to quality clients has never been better for us. Part of that is because we have repositioned our staffing and the nature of our distribution activities you’ll see on chart 4 that we’ve had essentially over the – not essentially the fact 1,400 people leave the firm with a 1,100 in, we’ve repositioned, refitted our fixed income business our foreign exchange business many parts of our equity business that is giving us access at very high quality and broader client penetration, you see that in those numbers that I sited in 7% quarter-over-quarter but probably more important is 25% year-over-year.

And its happening in our institutional business and with the efforts that Randy and folks are doing in our retail side, we are growing our client basis and because of the emphasis that we had before I got here and giving even greater emphasis today, the commodity book of business is growing very, very substantially. So we think that because of access at people that is happening as the restructuring goes on in other institutions and some people are withdrawing from the business gives us a chance to upgrade talent and talent who have relationships and (indeed) we think it, it really, really allows for deeper penetration into the marketplace in those areas that we choose to pursue.

Kenneth Worthington – JPMorgan

Okay, thank you.

Operator

And our next question comes from the side of Ed Ditmire from Macquarie. Please go ahead.

Ed Ditmire – Macquarie Securities

Hi, good morning

Jon S. Corzine

Hi, Ed.

Ed Ditmire – Macquarie Securities

My question is about a on strategy, over most of the last year your stock has gained meaningful support from the tangible book value (moreover) but over the last quarter it’s lost that and today it’s trading over deep discount to tangible book value.

How long would you have to see your stock trading at these deep discounts before you would consider major strategic alternatives to unlock some of that liquid tangible book value?

Jon S. Corzine

We believe that the path forward that I identified will do some of that in itself. And while there is no doubt that there has been, what I believe, a clouded view of our potential, in conjunction with the RTM portfolio, we feel confident that our balance sheet, our growing book of business and the restructuring steps that we’ve taken will provide recognition to the marketplace by our performance as we have demonstrated in the previous four quarters up to the summer quarter, will demonstrate to the market that that pricing arbitrage needs to be adjusted. But it is our responsibility to take the steps that I outlined to capture that value and for us to produce the kinds of outcomes that we had begun to demonstrate in the four previous quarters.

Ed Ditmire – Macquarie Securities

In fact I’ll ask a follow-up. You mentioned that you could use sales of non-core business as a source of funds if you had additional capital requirements for growth.

Jon S. Corzine

Yes.

Ed Ditmire – Macquarie Securities

To maybe express it, does the retail business qualify as a core part of your middle market investment bank strategy?

Jon S. Corzine

Yes, we believe that at this point, it’s very clear that the mix between retail, retail that’s high network individuals and professional traders and individuals using an electronic platform to access to exchanges around the globe is a good foundation for our overall activities. And we also believe that it provides a platform for our general broking business that is historically being done with voice brokerage in history, but needs to be supplemented in the periods ahead and you can see with strategy runner and other things that we’re doing, we’re enhancing our capacity to capture that opportunity and it ties very closely to that retail franchise.

Ed Ditmire – Macquarie Securities

Okay, thank you.

Operator

Thank you. We will take a follow-up question from the side of Roger Freeman from Barclays Capital.

Jon S. Corzine

Hey, Roger.

Roger A. Freeman – Barclays Capital

Hey, thanks. I guess, just wanted to ask a couple of things on other questions you answered. The prop, you said the trading revenue this quarter was primarily from customer facilities. Just curious what that mix is like for the last quarter.

Jon S. Corzine

You mean in our first fiscal quarter?

Roger A. Freeman – Barclays Capital

Yeah.

Jon S. Corzine

Remind me I want to be very clear, it was closer to 46%.

Roger A. Freeman – Barclays Capital

Yeah, half, half, I think…

Jon S. Corzine

It was about, it was a little more in the client facilitation business, but significantly greater in the prop than in the second quarter.

Roger A. Freeman – Barclays Capital

Okay. When you look at the $9 million, I mean, I guess I’m trying to figure out, so that’s really just the drop off in the prop, probably the biggest piece of that. And you mentioned…

Jon S. Corzine

We had client facilitation businesses that had drops as well.

Henri J. Steenkamp

Roger, what is the $9 million you’re referring to?

Roger A. Freeman – Barclays Capital

I think the net trading revenue.

Henri J. Steenkamp

No.

Roger A. Freeman – Barclays Capital

12, I guess it’s 12, sorry. Not sure.

Jon S. Corzine

I’m going to leave, I’ll leave the numbers to Henri.

Henri J. Steenkamp

That’s the principal trading line under the GAAP classification. I think the base slide to look at is, slide 17 where we breakout our net revenue stream and I think there you can see that come down to 30, 31…

Roger A. Freeman – Barclays Capital

65 to 31, okay.

Jon S. Corzine

Yeah, which is what we referenced in our market as well.

Roger A. Freeman – Barclays Capital

And you say this…

Jon S. Corzine

Roger I want to make clear. It’s not that there were no treading loss, there is no major trading losses when the VIX from 20 to 40, it’s not – we’d not be unexpected even on minor positions as to we’re going to have some trading losses. We saw extraordinary volatility in US treasuries. We are a primary dealer. So there are what we would label client facilitation gains and losses. Our commodities business had an extraordinarily positive quarter in its client facilitation work. Some of the other things we’re not as successful, but that’s a trading business. You’re going to serve the clients.

Roger A. Freeman – Barclays Capital

Not that they are different from what given from a larger competitor.

Jon S. Corzine

Right. Although there were no major disproportion

Roger A. Freeman – Barclays Capital

Got it.

Jon S. Corzine

No losses that other than the kinds of things that are very normalized within our risk appetite risk limits.

Roger A. Freeman – Barclays Capital

Okay, and just two other questions (inaudible). The increase you talked about bringing new clients on this quarter, and I think you said, your client balances were flat, and just I wonder if you can may be give us some color on other number of clients right in or even better amount of assets from new clients that’s flat outcomes pretty good in a down quarter. And the second question is on comp you mentioned, you thought it could be in the mid 50s near terms, so given that it was 52% this quarter I was just wondering does that assume some better revenue outcome. You are in the third quarter or additional are there headcount rationalization or other comp adjustment?

Jon S. Corzine

Okay. So I think firstly on your first question on client balances, I think we stated in previous quarters and this quarter we executed and continue to work on this that we are continually examining profitability of client accounts, capital usage return on capital. As we sort of assess the dynamics of every single account, we may also select a client relationship and/or transfer regulatory capital responsibilities for relationship to affiliate. I think our (inaudible) funds reported for August reflects that, and I can tell you that approximately $1 billion was an outflow reflecting sort of this self selection process. So, I think if you sort of factor that in and you look at where our client balances are, I think it gives you sort of a sense of sort of the inflow side it as well.

To your second question on compensation, I think in my remarks, I refer to the fact that yes, mid 50s is still the target, but obviously low-level such as this puts pressure on that. It was two fold this quarter as I mentioned, one was the low, just the low level by itself and the fact that fixed comp of revenues, which means fixed comp is a larger mathematical proportion. But then I think secondly, also this quarter had a higher mix of the sort of the higher comp revenues you know the SEM revenues to a large degree. And so that’s sort of what drove the comp ratio this quarter. And so I think it’s fair to say that mid 50s would go hand-in-hand with either a larger mix shift in the principal trading client facilitation side or slightly elevated levels of revenues.

Roger A. Freeman – Barclays Capital

That's also as good as mentioned. Okay. Thanks a lot.

Operator

Second follow-up question from the side of Niamh Alexander from KBW

Niamh Alexander – Keefe, Bruyette & Woods

Hi, thanks for extending your call. I appreciate it. I just want to clarify, you’re talking about scaling the SEM closing out your search for an asset manager, and you did say you have the opportunity maybe to cash in some non-core assets, but just to clarify your tolerance here for diluting and pre-shareholders transaction or financing there of?

Jon S. Corzine

The reason that we identified steps that we can take to generate equity that don't dilute shareholders is exactly why I verbalize the way we did and how we are focusing on the pathway forward. And I think there are other steps that we can take most notably, the insurance settlement, which continues to precede that would generate equity without diluting shareholders and that are our intent.

Bradley I. Abelow

I mean, I think that’s important. You can see the excess capital that we have, which was referred to early at large amounts and we’re working on how to maximize that.

Niamh Alexander – Keefe, Bruyette & Woods

Okay, fair enough, thank you. And then lastly Henri, sorry to – you again, but did you mention on the call that in your first presentation, yesterday, which was really helpful showing that your worst case scenario was $0.50 losses as at the end of June. Is that a potential dollar risk tangible now is that what you are clarifying?

Henri J. Steenkamp

Yes. So we were, I was sort of, I was giving you an update from that presentation, which was June 30 reflecting in other changing market conditions and sort of a range of what we think the dollar risk I guess, as you would call it.

Niamh Alexander – Keefe, Bruyette & Woods

Okay, fair enough. Thanks for clarifying.

Henri J. Steenkamp

Sure.

Operator

Thank you. And it appears we have no further questions at this time.

Jon S. Corzine

Thank you all. We appreciate very much you’re joining the call and we look forward to coming back with better results.

Operator

Thank you, ladies and gentlemen for your participation in the MF Global’s fiscal second quarter 2012 earnings conference call. This concludes the meeting. You may now disconnect and have a great day.

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