Question-and-Answer Session
Operator
Your first question comes from Dan Fannon - Jefferies & Co.
Dan Fannon - Jefferies & Co.
I know you are limited on what you can say here but was wondering if you could update us on how many of the brokers you were able to retain or if you can update us on any of the hiring process in terms of outside employees that you’ve had, you’ve been successful in bringing in to replace some of the lost employees.
Michael Gooch
We can’t say very much about that. We’ve hired a few. We kept a few but we’re not really giving any detail on that but we’ll update you in due course.
Dan Fannon - Jefferies & Co.
I guess in terms of the expenses and on compensation costs can we talk about the impact potentially going forward, you obviously are losing some high cost employees that you were paying a fair amount to but you now have to then pay up to replace them. How do you think that’s going to play out in terms of your margin structure going forward?
James Peers
Well I think there are a few factors that are going to influence that ratio. First of all in the Q1 did benefit from the high revenues and therefore the cost of [leaverage] of the support staff comp costs so that brought it down. The competition for brokers is still strong and will keep the pressure on broker payouts and also it is too early to see what the impact of the CDS staff that left will have on our comp ratio but we do expect it to increase in the near-term and I would estimate in the region of around 62%.
Michael Gooch
I would like to add something. There is no doubt in my mind that this particular raid will lead to a lowering of profit margins in the North American credit derivative business for all IDBs, not just GFI. There is currently the game of musical chairs taking place as other brokers are scrambling to replace lost brokers and to secure their remaining brokers from rivals. So for example if GFI picks up two or three credit brokers from one or more of our direct competitors as we rebuild, then those competitors will have to look to replace them and at the same time secure brokers who they view that may be vulnerable to approach. Any IDB that were in the middle of a contract renewal negotiation with one or two credit derivative brokers will have to pay up and lift the offer in terms of signing bonuses and guarantees or else risk losing the broker. Frankly the IDBs in this instance led by tradition have in my opinion in their infinite wisdom, set up what I would describe as a circular firing squad. I agree with Jim that in terms of the overall impact on our compensation margin the effect of this going forward will be that our compensation margin will have a 62 handle instead of a 61 handle.
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