KBW swings to 1Q loss as books are hit with bad investments

KBW Inc. posted a loss for the first quarter on Thursday as turmoil in the bond market saddled the investment bank with certain investments the company was unable to sell.

KBW reported a loss of $7.5 million, or 24 cents per share, compared with profit of $7.7 million, or 24 cents per share, in the first quarter last year. Analysts polled by Thomson Financial expected profit of 26 cents per share.

The loss stemmed from a line of business called PreTSL. In this business, KBW buys or helps companies issue special classes of stocks, pools the stocks together, and once a quarter sells these pools to investors in the bond market.

With investors reassessing their appetite for risk across a wide spectrum of investments, demand for "structured" debt _ or debt splicing payments from a variety of sources _ has waned.

KBW was unable to sell its PreTSL pool this quarter, sticking the illiquid bundles of stocks on the company's books. KBW uses software and quantitative models to assess the value of these investments, and must carry those investments on its books at a fair market price.

KBW recorded a $30.1 million loss in the principal transactions segment, mostly because of losses booked on the PreTSL pools.

Revenue plunged 26 percent to $74.9 million from $101.3 million. Analysts expected revenue of $97 million.

For accounting purposes, the PreTSL loss is subtracted from revenue.

Revenue from trading commissions leaped 43 percent as trading volumes surged amid volatile markets.

Investment banking revenue declined 8 percent. The company said the outlook for corporate acquisitions and the capital markets remains unclear.