LaBranche says approval of proposed regulatory change likely to produce free cash flow above debt

By Jennifer Lanning Drey

Portland, Ore., Oct. 23 - LaBranche & Co. Inc. would be likely to report positive free cash flow in excess of the firm's outstanding debt if a pending proposal by the New York Stock Exchange is approved, Jeffrey A. McCutcheon, chief financial officer of LaBranche, said Tuesday during the company's third-quarter earnings call.

The proposal would lower the cash equity specialist net liquid asset requirements by 75%.

"This would be a very positive development for our cash equity specialist business," chief executive officer Michael LaBranche said.

Net liquid assets held for regulatory capital purposes by the cash equity specialist business were approximately $288 million at Sept. 30, according to McCutcheon.

At the end of the third quarter, LaBranche had cash and liquid assets of approximately $543 million, compared with $510 million at the end of the second quarter, he said.

LaBranche's available free cash had increased to $275 million at Sept. 30, up from $149 million at Dec. 31, mainly due to additional free cash from the reduction of regulatory capital balances, which was offset by scheduled payments, he said.

"At the end of the period, the firm's balance sheet continues to be highly liquid with significant cash and cash equivalents," McCutcheon said.

For the third quarter, LaBranche reported revenues, net of interest expense, of $41.7 million, compared with revenues, net of interest expense, of $61.2 million for the same period in 2006. The decrease was primarily attributable to adverse trading conditions in July and August, the CFO said.

LaBranche has implemented cost savings initiatives, including a 40% reduction in occupancy of offices in New York, as well as headcount reductions.

"The company anticipates that these and other cost saving initiatives will lead to enhanced profitability in the future," McCutcheon said.

LaBranche is a New York-based specialty trading firm.

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