GAM Suffers Record Decline After Scandal Leads to Massive Loss

(Bloomberg) -- GAM Holding AG’s shares fell a record 31 percent after the firm signaled it’s struggling to contain outflows prompted by a scandal over a star money manager and forecast a record loss.

The Swiss investment company said it will post a shortfall of 925 million francs ($931 million) for the year after massive outflows forced it to write down the value of its business. The loss erases eight years of earnings since GAM went public. With assets and fees lower for the foreseeable future, the group is cutting 10 percent of jobs.

GAM Suffers Record Decline After Scandal Leads to Massive Loss

Interim Chief Executive Officer David Jacob is seeking to move beyond the tumult created by the suspension of bond manager Tim Haywood in July and reverse the downward spiral of bad news and client outflows. GAM held informal talks with potential buyers with a view to stabilizing the business, people familiar with the discussions have said, though the CEO now says he’s focused on cleaning house.

“Today is about facing our financial reality so that we can move on and build a future for this business,” Jacob said on a conference call. “We are absolutely focused on the structure of this business, looking internally, and making sure this business is positioned for growth in future.”

GAM was down 25 percent at 11:37 a.m. in Zurich trading, bringing declines this year to 77 percent. The firm said it will probably suspend its dividend for 2018 to help rebuild capital. The full-year loss is mainly related to a series of goodwill charges at the group and its Cantab quant funds, GAM said.

Fund Freeze

“It is almost unnerving how GAM is once again able to outdo itself with negative reports this year,” said Michael Kunz, an analyst at Zuercher Kantonalbank in Zurich. “There is still no reason to touch this share.”

Haywood’s suspension triggered a wave of outflows, forcing the firm to halt redemptions from his fund family and accelerating a slump in the stock. News of the freeze triggered withdrawals in other parts of the business, with clients pulling 4.2 billion francs in October and November. All told, assets under management declined by a further 7 billion francs since the end of September.

GAM Suffers Record Decline After Scandal Leads to Massive Loss

“It’s very difficult to predict flows,” Jacob said. “October and November were particularly bad months for the industry in general, with added difficulty for European asset managers.”

The suspension came as GAM was being buffeted by difficulties in the asset-management industry. Volatile returns and an investor flight to low-fee products have squeezed profits, forcing many money managers to consolidate. Assets declined by about $18 billion in the third quarter as Haywood’s funds were liquidated and clients pulled money from other strategies.

Before the profit warning, GAM had gotten a rare sign of investor support when Mario Gabelli, the 76-year-old head of Gamco Investors, last month disclosed that he owned a stake of around 3 percent in GAM. Gabelli has gained renown on Wall Street through a combination of savvy stock-picking and self-promotion, looking for undervalued companies with a catalyst such as a takeover or management changes that may unlock gains.

Much of the writedown behind GAM’s loss was tied to goodwill that dates back to Julius Baer Group Ltd.’s purchase of the asset manager from UBS Group AG in 2005. When Baer split off GAM in an initial public offering in late 2009, the latter kept the goodwill -- the intangible value of a company’s brand, its customers and employees -- on its books.

By writing down the value of the business, Jacob is acknowledging that outflows in the past months will impact earnings into the future. GAM said Thursday that next year’s financial results will be “materially” below this year’s because of the lower asset base and the cost reduction program.

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