ITG Chief Seeks New Path for Troubled Brokerage

Frank Troise is three weeks into a job as chief executive of Investment Technology Group Inc. and he faces a familiar task—plotting a new path forward for the brokerage firm.

The company he first joined almost two decades ago has been under pressure since last summer when executives said they were working with the Securities and Exchange Commission on a settlement related to ITG's "dark pool" and a pilot trading program. The disclosure and subsequent $20.3 million penalty led many customers to route stock-trading orders elsewhere.

Mr. Troise, who left a job as a managing director of J.P. Morgan Chase & Co. to take the helm of ITG last month, said in an interview at the firm's downtown Manhattan offices that ITG had made progress in rebuilding trust and was on the cusp of a strategic review that will result in a narrower focus on its core brokerage business.

When he first joined ITG in 1997, the company known for its technology operated "in a market that was far less ripe" for it, Mr. Troise said. However, back then it had a market capitalization roughly four times what it is today.

Over the past decade the firm has added to its core financial technology business, branching into research in 2010 with the acquisition of Majestic Research Corp.

In the wake of several board-level changes, the settlement and the related ouster of ITG's former chief executive, Mr. Troise must now decide which businesses the firm should commit to long-term.

Richard Repetto, an analyst at Sandler O'Neill + Partners LP, said, "ITG needs to seriously look at divesting its research unit."

The firm has already pared down the group. It agreed in November to sell its energy-research group to private-equity firm Warburg Pincus for $120.5 million in cash. The deal gave ITG money to spend on acquisitions, but also raised questions about the future of the remaining research unit.

Mr. Troise said acquisitions are a possibility and that the firm was prepared to spend money to pursue new initiatives, but he didn't commit to specific plans. Sitting in a conference room with his sleeves rolled up, the new chief executive emphasized the firm's trading and analysis businesses that involve helping clients navigate high-speed, fragmented markets. He says the focus is on execution, liquidity, workflow tools and measurement.

The first change he is pushing: When there is a new business to get into, the firm is going to try to become a dominant player, Mr. Troise said.

In the past, it treated forays into new asset classes like credit and foreign exchange more like experiments that it would pursue further if they started to gain traction, he said.

ITG on Thursday reported a net loss of $2.5 million in the fourth quarter, excluding the impact of the sale of the energy research business, compared with net income of $13 million in the fourth quarter of 2014.

The firm posted $224.2 million in revenue in the fourth quarter, including gains from the sale of the research business. Revenues excluding that impact were $116.5 million, compared with $149 million in the prior-year period.

Chief Financial Officer Steven Vigliotti said on a call with analysts that while earnings for the final quarter of 2015 "were not positive," the firm was making progress in recovering from the SEC settlement. He said that almost all of the clients that stopped trading with ITG following the settlement have returned to doing business with the firm in some capacity.

Adding to the pressure for firm leaders is the threat of a potential activist campaign. Philadelphia Financial Management of San Francisco LLC and Voce Capital Management LLC disclosed in a regulatory filing late last year that they had amassed a combined 8.6% stake in the firm. The two firms have pushed for board-level changes at ITG in the past.

In January, the firm named Minder Cheng, who had been a board director since November 2010, as chairman, replacing Maureen O'Hara. It also added two other board members last month.

Analysts have said ITG's stock has room to grow.

"Progress is slow but unmistakable," J.P. Morgan Chase & Co. analysts wrote in a January note, referring to the firm's success in regaining lost equity trading market share. They upgraded the stock from neutral to overweight at the time.

Write to Sarah Krouse at [e-mail] and Bradley Hope at [e-mail]

(END) Dow Jones Newswires

February 05, 2016 11:25 ET (16:25 GMT)

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