Piper loses $153 million as IPOs nearly vanish in weak economy

Everything that could go wrong for Piper Jaffray & Co. in the final three months of 2008 in fact did. Or at least pretty close to it.

The Minneapolis-based investment bank said it lost $153 million, or $9.78 per share, in the fourth quarter, compared with a profit of $6.5 million, or 37 cents a share, during the same period a year ago. The company was besieged by an economic recession that has stifled demand for mergers and initial public offerings (IPOs) and a series of related one-time financial charges, including a $127.1 million write-down to reflect the declining value of its core investment banking business.

Piper shares closed at $26.75, down $1.96, or nearly 7 percent.

"During the fourth quarter, economic and financial market conditions deteriorated, affecting nearly all of our businesses," CEO Andrew Duff told investors during a conference call. "We took actions to reduce our operating cost structure and to manage and mitigate risk exposure. Our actions were not able to overcome the severe market conditions, and our operating results suffered."

Duff said the company would cut incentive-based compensation and senior managers, including himself, would not receive bonuses for 2008.

How bad was it for Piper? The company said it took a $2.4 million charge to fourth-quarter profits related to travel and legal costs for deals that were not completed.

Like all investment banks, Piper struggled to generate revenue as frozen credit markets scared away demand for IPOs and wiped out financing for mergers and acquisitions. IPO volume last year fell 44 percent, to $31.1 billion (46 deals), from $55.9 billion (254 deals) in 2007, according to Dealogic. In 2008, 121 companies withdrew or delayed their IPOs, compared with 68 in 2007, the highest annual number since 2001.

With confidence eroding and liquidity drying up, Wall Street's mightiest investment banks tumbled late last year: Lehman Brothers filed for bankruptcy, Merrill Lynch sold itself to Bank of America, and Goldman Sachs and Morgan Stanley converted into bank holding companies.

During the fourth quarter, Piper managed only two mergers and acquisitions, two private placements, and some municipal debt underwriting. The company was co-manager of the country's only IPO in the quarter: Grand Canyon Education Co., an online education company based in Phoenix.

But overall, the numbers for Piper looked grim: investment banking revenue in the fourth quarter, including equities, debt, and advisory services, fell 73.6 percent to $25.5 million from the 2007 period.

Duff predicted that 2009 would continue to be a tough year for IPOs and advisory services, although Piper is working hard to market its international banking expertise. It has offices in London, Shanghai and Hong Kong. Despite cutting its workforce by 8 percent in the fourth quarter, Piper has beefed up its presence in health care, media and entertainment and clean technology.

"We have a solid balance sheet with ample liquidity and sufficient capital to conduct our business," Duff said. "We are confident that we will manage through the near-term difficult period. Our goal is to achieve profitability in 2009 despite another difficult operating environment."

Thomas Lee • 612-673-7744