February 27, 2009 / 12:02 PM / 9 years ago

UPDATE 2-GMP Capital posts loss, to convert to corporation

* ROE 9.8 percent in 2008 vs 48.9 percent in 2007

* Expects to complete conversion to corporation in May

* Sees dividend at C$0.05 a share after conversion (Adds details, quote from conference call, analysts)

By Jennifer Kwan

TORONTO, Feb 27 (Reuters) - Canadian investment dealer GMP Capital Trust GMP_u.TO posted a quarterly net loss on Friday, hurt mainly by charges and investment losses as capital markets deteriorated, and it said it would convert back into a dividend-paying corporation.

“Our fourth quarter results were clearly affected by the ongoing financial crisis,” Kevin Sullivan, GMP’s chief executive, told a conference call with analysts.

“GMP, like virtually all capital market participants, entered the fourth quarter with too much capital exposed to the markets.”

Sullivan said GMP has subsequently focused its priorities on scaling back its risk exposure, implementing several cost-cutting initiatives and strengthening its capital position.

The company posted a net loss of C$17.5 million ($13.78 million), or 27 Canadian cents a unit, on a diluted basis, for the fourth quarter ended Dec. 31, compared with a net profit of C$23.8 million, or 37 Canadian cents a unit, a year earlier.

The company said the results included losses of C$13.4 million related to principal activities and a C$9.8 million noncash goodwill impairment charge related to its 2006 acquisition of private equity firm EdgeStone Capital Partners.

Fourth-quarter revenue dropped 67 percent to C$33.8 million from C$101.48 million.

On an adjusted basis, the company said it lost 1 Canadian cent a unit. Analysts had expected a 1 Canadian cent unit loss, before exceptional items, according to Reuters Estimates.

For the year, GMP said it earned C$26.2 million, or 41 Canadian cents a unit, compared with C$146.1 million, or C$2.28 a unit, in 2007.

Return on equity, a key measure of corporate profitability, in 2008 was 9.8 percent versus 48.9 percent in 2007.

GMP shares sank C$1.52, or 21.9 percent, to C$5.40 on the Toronto Stock Exchange on Friday afternoon. At one point, shares fell as much as 27.7 percent to C$5.01.

The company said its board had approved a proposal to convert GMP from an income trust back into a dividend-paying corporation, a move that the company said will allow it to retain more cash flow to better weather market conditions.

The company, which has suspended its distributions, said conversion back into a corporation is expected to be complete at mid-May, and said it expects to pay an initial dividend of 5 Canadian cents a share upon conversion.

John Aiken, analyst at Dundee Securities, downgraded his rating on GMP stock on Friday to “neutral” from “buy”, citing the “double whammy of weak results and a deconversion from a trust”.

“While we remain optimistic on GMP’s prospects for 2009, we cannot deny that the deconversion portends a more negative near-term outlook for the dealer than we had been assuming,” Aiken wrote in a research note.

$1=$1.27 Canadian Additional reporting by Anurag Kotoky in Bangalore; Editing by Peter Galloway

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