Wilmington Trust Corp. says it remains committed to its growth-style investment management unit, even though an accounting writedown related to the unit delivered a significant blow to third-quarter profits.
Earnings declined 88% from a year earlier, to $5.2 million, or 7 cents a share, as the Delaware company absorbed a $72.3 million impairment charge against its valuation of Roxbury Capital Management after the Los Angeles unit discontinued its microcap fund and announced plans to exit the fixed-income business this year.
Ted T. Cecala, Wilmington Trust's chairman and chief executive officer, said during its earnings call Friday that his company remains "positive" about Roxbury's long-term outlook.
"We expect Roxbury will be a profitable company," he said. "This quarter's charge reflects the cost of unwinding the microcap product, but we do think that this will be a profitable company."
Wilmington acquired Roxbury in July 1998 six months after buying Cramer, Rosenthal, McGlynn LLC, a White Plains, N.Y., value manager.
"Roxbury is a profitable firm and a valuable investment," Mr. Cecala said. "Their core, small-, and midcap products are doing extremely well. They have been incubating new products and acquiring other investment managers. … Although our investments in money manager firms added volatility to earnings because investing in the asset management business is extremely volatile, they support our long-term strategies."
Some analysts said that despite Mr. Cecala's rhetoric, the charge might temper Wilmington's interest in acquiring asset managers.
Jacqueline Reeves, an analyst at BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc., said that Wilmington may stop acquiring investment management companies, but that such a decision would have little to do with the Roxbury charge.
"Since Wilmington moved to an open architecture platform two or three years ago, I'd be surprised if they bought another asset management company," she said. "The thought is, they want to provide 'conflict-free' investing. They want to be like Switzerland. I mean, having some specific proprietary products are fine, because they can compete on the open architecture platform, but 'conflict-free' investing means limiting the number of proprietary offerings."
The Roxbury charge was on paper only, a "noncash charge," Ms. Reeves said. According to Mr. Cecala, Wilmington reviews its subsidiaries annually, and in some cases more frequently, for "impairments" so it can adjust its expectations accordingly.
Ms. Reeves said, "Roxbury remains in place, and Wilmington is happy with their decision to hold on to it. They expect profitability in the future and growth in its assets under management."
Excluding the Roxbury charge, Wilmington's operating earnings would have increased 10% from a year earlier, to $46.9 million, or 67 cents a share. The average estimate of analysts polled by Thomson First Call had called for earnings of 69 cents a share.
By midday Friday, Wilmington's stock had fallen 3.8%, to $43.04 a share. "This was a bit of an unusual quarter, because of the impact of the Roxbury charge," Mr. Cecala said. "But if you look beyond that, we believe that operating performance for the company is a more appropriate measure for our success."
William J. Farrell, Wilmington's executive vice president and chief financial officer, said during the call that his company would continue to look for opportunities to expand domestically and internationally. It added distribution in Germany, Ireland, and the Cayman Islands during the third quarter, he said.
