shares of gfig have fallen sharply since last thursday to a recent quote of $11; gfi took a big tumble on friday as the company announced the departure of Donald Fewer, head of its north american credit products brokerage business. in addition, the company said it believes that two dozen credit products brokers -- representing about $50 million in 2007 revenue -- may be in the process of defecting to a competitor.
it cannot be argued that the departure of mr. fewer, as well as the potential departure of the brokers, won't have a negative impact on the company. that's because the company's compensation expenses could rise in reaction to an increasingly competitive market for talent. in addition, gfi hinted at potential legal action in the matter, as it's possible that some brokers could be breaking noncompete agreements or other parts of their employment contracts. so any associated legal expenses could be another burden on the bottom line.
however, the real question becomes, does the stock's decline already reflect all the potential negatives here? probably so, especially since the brokers in question accounted for just 5% of the company's 2007 revenue. plus, gfig has a rather diversified business model, with exposure to other classes of securities such as commodities and equities.
in the press release from friday, gfi also preannounced roughly in-line first-quarter earnings results, a positive given investor concerns that the credit crunch and hedge-fund industry slowdown would negatively impact gfi's financial results. i think it's prudent to seriously consider shares of gfig here at about 11, given the negativity surrounding gfig.