GMP.PR.B On Review-Negative by DBRS

Yesterday I mentioned GMP Capital’s restructuring:

GMP, proud issuer of GMP.PR.B, has swallowed hard and acknowledged hard times:
GMP Capital Inc.’s radical restructuring, which involves shutting down its United Kingdom and Australian operations as well as eliminating its dividend, is also hitting senior staff at home.

In total, seventy-three jobs are being axed in a new round of cuts announced Wednesday, affecting investment bankers, research analysts and employees in sales and trading. Twenty-nine positions are being eliminated in Canada, 22 in the U.K., 12 in Australia and 10 in the U.S. GMP said 97 positions – a quarter of its work force – have now been eliminated since the end of the third quarter.

GMP has lost money in three of the past four quarters. In the third quarter of 2015, revenue from the company’s energy sector investment banking cratered 87 per cent from a year ago.

The brokerage was founded in 1995 and went public in December, 2003. GMP was immensely profitable during the great bull run in resources and some of its proprietary traders, such as Michael Wekerle, were among the best paid people on Bay Street. In mid-2006, GMP’s share price peaked at $28. It closed Tuesday at $3.92 – not far from an all-time low.

I have not seen any reaction from the Credit Rating Agencies yet.

Today, DBRS reacted:

DBRS Limited (DBRS) has today placed the Cumulative Preferred Shares rating of Pfd-3 (low) for GMP Capital Inc. (GMP or the Company) Under Review with Negative Implications. This review follows GMP’s announcement that it is undertaking a series of fundamental organizational changes in its Capital Markets division which have the potential to have an impact on the Company’s franchise positioning and further weaken its earnings generation ability.

During the review period, DBRS will also focus on the ongoing weakness in the Company’s earnings. While GMP’s intention is to improve earnings over the longer term by reducing fixed costs in its expense base, the near- to medium-term results will likely be pressured by the very adverse market environment, given the challenges posed by the dramatic decline in oil and gas prices, especially if the Company’s franchise position is weakened during its restructuring. GMP’s Q4 2015 results will be affected by the restructuring charge, and DBRS expects that the Company will report a loss in the quarter and for the full year 2015. DBRS will evaluate the size of the loss and impact on capital following the release of results.

The severity of a downgrade will consider various factors during the review period. These factors include the Company’s vulnerability to the uncertain economic outlook and market conditions, the degree to which its franchise strength has been impaired, the sufficiency and quality of its capital, and the potential for it to return to sustained profitability.

DBRS expects to conclude its review shortly after the release of GMP’s Q4 2015 results.

GMP has been labeled Trend-Negative by DBRS since November, 2012.

GMP has only a single preferred issue outstanding, GMP.PR.B, a FixedReset 5.50%+289, which commenced trading 2011-2-22 after being announced 2011-2-1

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