National Financial Partners Corp., the amalgamator of financial planning firms whose shares have plunged 90.7% in the past 52 weeks, is renegotiating its bank credit lines, suspending its dividend and share buybacks and temporarily ceasing acquisitions as it and its constituent firms continue to struggle.
New York-based NFP, which began operating in 1999, last week also announced a 20% reduction in head count at its corporate headquarters, put about 35 of its 182 constituent firms on a "watch list" for sale or restructuring due to poor performance, and said it will focus in the near future on helping its life insurance agents, wealth managers and corporate-benefits advisers cut costs as they cope with difficult market conditions.
The company made the announcements last week after reporting that fiscal third-quarter earnings fell 68.3% to $5.1 million, from $16.1 million a year earlier.
NFP's shares, which reached almost $57 last year, plummeted to $4.76 a share, a new all-time low, after the firm's earnings call last Thursday in which analysts expressed concern about the company's decisions to renegotiate bank debt as it began bumping up against debt-ratio restrictions.
The company's chief financial officer, Donna Blank, said its decision to renegotiate was purely voluntary. She maintained that the company has $44 million of unencumbered cash that is sufficient for its immediate needs and could be used to pay down debt.
The decline in share price is especially devastating to the heads of the 182 NFP member firms, known in company lingo as "principals," who typically cede more than 50% of their earnings to NFP in return for stock and cash. After their initial sales transaction, the firms are generally required to remit the first 50% of their continuing earnings to the parent company.
"If there's a principal out there who's not disappointed with where the stock price is, he's lying,'' said John T. Cash III, managing principal of the Orlando, Fla.-based Cash & Associates agency, who is a member of NFP's Rep Council and who has supplemented his original allocation of shares with periodic exercise of stock options he was awarded for meeting revenue incentive targets. He recently exercised his last batch of option grants at $10 a share — the lowest exercise price he had obtained since joining NFP in its first year.
NFP said that revenue at firms it has owned for more than a year declined for the quarter, with sharp drops in its life insurance agencies, flat results in its benefits business and modest upticks in its financial advisory sector. And in a continuing trend, the firm said that expenses at its member firms and the parent company continued to grow at a faster rate than revenue.
The company also was gloomy about the near-term future. NFP firms' financial products and services, which are concentrated in life insurance, are generally the first to recover from bad times, they said, and the firm usually boasts its strongest quarter at yearend.
All bets are now off, however.
"It's very difficult to predict what the next several quarters will hold, other than probably a very significant recession," NFP chairman and chief executive Jessica Bibliowicz said during the conference call Thursday.
Searching for a silver lining, NFP executives said the Democrats' congressional and White House victories last week all but killed the prospect of a permanent repeal of the estate tax, which should encourage estate planning and sales of annuities and other fixed-return investments. "That kind of clarity is good for life insurance sales and back-to-basic wealth management planning," said Doug Hammond, NFP's chief operating officer and former general counsel.
Ms. Bibliowicz conceded, nevertheless, that her firm and its insurance cousins are all engaged in a war against loss of consumer confidence. Wealthy people remain very concerned about entering into insurance contracts, particularly with insurance giants such as New York-based American International Group Inc. that are struggling for survival, she said.
Several analysts questioned the viability of NFP's business model, given the core strategy changes and expense cuts it announced last week. Analyst Jukka Lipponen of New York-based Keefe Bruyette & Woods Inc. went so far as to suggest that some principals may be selling products without giving the profit to NFP, a major challenge to the company's operating model.
"We are watching," Ms. Bibliowicz said, noting that the cuts of more than 25 employees this year haven't hit NFP's compliance department. "They would lose their business" if they violated their contracts, she said.
Ms. Bibliowicz added that NFP carefully selects its firms and its principals have "the greatest ethics in the industry."
Several principals, most of whom sought anonymity, said that they would be shocked to learn that colleagues might be "selling away," which would further impair profits for all firms.
"We're not aware of any such breaches of the management contracts NFP has with firm principals, nor do we see evidence of it in our cash receipts from NFP-owned firms," a company spokeswoman said.
E-mail Jed Horowitz at [email protected].
