Good day ladies and gentlemen and welcome to the INTL FCStone Q1 FY '17 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a Question-and-Answer Session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like introduce your host for today’s conference Mr. Bill Dunaway, Chief Financial Officer, you may begin.

Good morning. My name is Bill Dunaway, CFO of INTL FCStone. Welcome to our earnings conference call for our first fiscal quarter ended December 31, 2016. After the market closed yesterday, we issued a press release reporting our results for the fiscal first quarter. This release is available on our website at www.intlfcstone.com, as well as a slide presentation, which we will refer to on this call in our discussions of our quarterly results. You will need to sign on to the live webcast in order to view the presentation. Both the presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we are required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto, as well as the Form 10-Q filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed on our filings with the SEC. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company's actual results will not differ materially from any results expressed or implied by the Company's forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I will now turn the call over to Sean O'Connor, the Company's CEO.

Thanks, Bill and good morning, from a snowy New York. Welcome to our fiscal 2017 first quarter earnings call. During the quarter, we saw President Trump getting elected in a political black swan events, which has had fairly dramatic and at least for now overall positive impact on the markets. It is now clear that we are dealing with a different top of administration that is likely to have an impact on our market environment. I would expect this to be generally positive for your business with more volatility in the financial markets and perhaps a greater probability of interest rate increases, as well as some easing of the regulatory burden on the financial industry generally. The market seems to conquer with this year and has re-rated financial stock since the election result, our share price included. This is a mark change in financial statement, which has largely been negative to the sector overall, since the financial crises eight years ago. While there was generally increased market volatility for the reasons just mentioned, the Q1 market environment has been somewhat mixed for us, with more upon grain markets and on the other side of the spectrum extreme volatility in the metals market, which led to some customer stress. Overall, the Q1 was a disappointing result; we recorded an EPS of $0.34 a share versus $0.46 last time, a decline of 26%. On a sequential basis, we are down 62% versus the Q4 EPS of $0.90 albeit that quarter included a $6.2 million after tax gain on the Sterne acquisition. These results were impacted by a provision for bad debt of 2.5 million due to the extreme market volatility of LME metals market and a negative mark-to-market adjustment on our interest rate enhancement program of 5.6 million due to interest rate…

Thank you, Sean. I will be referring to slides and the information we have made available as part of the webcast, specifically starting with Slide 3, which represents a bridge between operating revenues for the first quarter of last year to the current fiscal first quarter. As noted on the slide, first quarter operating revenues were $185.5 million, which is a $34.2 increase over the prior year. Looking at the performance in our operating segment, the most notable change was a $33.8 million or 113% increase in our clearing and execution services segment. This is primarily related to the acquisition of the Sterne Agee Correspondent Securities Clearing and Independent Wealth Management businesses as well as the ICAP business, which Sean touched on which collectively added incremental operating revenue of $30.2 million in the current quarters. The second largest increase in operating revenues was in our global payment segment, which added $4.8 million or 53% volume growth. In addition, physical commodities operating revenues added $3.9 million over the prior year as the precious metals business increased 900,000 and the physical Ag and energy business added $3 million over the prior year. Commercial hedging added $2.1 million in operating revenues as increased exchange-trading revenues primarily on the LME more than offset declines in OTC revenue, which resulted from lower energy and renewable fuels volume as compared with the prior year. These gains were offset by $11.4 million decline in our securities segment while our equity market making and domestic debt trading businesses grew operating revenue over the prior year. These gains were offset by $11.3 million decline in operating revenues in our Argentine debt trading and asset management businesses. The prior year period included a strong performance in Argentina, primarily due to the devaluation of the Argentine peso. Moving on to Slide…

Thanks, Bill. While we are a little disappointed with our Q1 results, we remain positive about the outlook for our business. The growth and expansion of our business and its capabilities over the past couple of years has positioned us to take advantage of its full consolidating industry and in addition, the market environment is now providing a tailwind for our business. As we said last time, we stand poised to become a best-in-class franchise, offering our global customers high-quality execution both high-touch and electronic, insightful market intelligence and post-trade clearing services in almost all markets and asset classes. This is a comprehensive array of products and services, which should allow us to take advantage of the large and noticeable and as yet unfilled void in the market created by the demise of larger financial franchises during the financial crisis. So with that, I would like to hand back to the operator and see if we have any questions. Operator.

[Operator Instructions]. Our first question comes from the line of Christopher Hillary from Roubaix Capital. Your line is open.

Hi good morning. Could you talk to us about how the comparisons look going forward on your Argentina exposure?

On our exposure?

Or just given how it impacted this quarter, due to the currency movement. Primarily how do you see that? How does that feather out in subsequent coming quarters?

Okay. So I would say we had a pretty exceptional situation in Argentina a year-ago and that probably continued back for maybe two, three quarters of last year, so if you sort of extent backwards right. And that all resulted with turmoil that was going on there, changes of administration, the government manipulating interest rates and foreign exchange rates and such. That led to lot of activity in the markets we trade in, so we had increased volume. And in addition, to hedge our equity exposure in the markets, we took off a short position in our trading book to help offset any potential devaluation. And so both of those things created an exceptional profit situation for us, and that was probably most notable in the fourth quarter. So I think we are now returning to a more normal situation in Argentina. I think, if you had to go back and look at sort of the two year-ago type results, I think we probably more along that kind of line maybe sort of up 20% or 30% but we certainly have lost the exceptional for those market environment that we were a net beneficiary of last year. We are now in the position also extract some of the equity and retained earnings, that have been built up in Argentina, so we are reducing the capital that we need in that business and that business continues to produce a great ROE for us. So even in a more normalized situation with slightly less capital with a more normalized situation, that business is definitely achieving us hurdle rates on its committed capital for us. The upside potential for us is, we are one of the few international companies that remained in Argentina during the crises and so the sort of the next opportunity for us beyond the base line business is how do we become more involved in cross border financial activities out of Argentina. We are working pretty hard on that, we are one of the few clearing members on the futures exchange down there; we are a member of the securities exchange down there. So we are starting to see slow and incremental progress for us becoming kind of the counterparty of choice for international financial institutions looking business there. So I hope that answers your questions, I think there is a longer term sort of new opportunity for us, but the base line business has probably returned to where it was may be two years ago. We are very happy with the business, making there right return on capital, we now need to sort of transition that business into more of a cross border opportunity which we see come in.

And then just on our financial dashboard, you shared some targets and goals. The ROE obviously impacted by some unusual items this quarter. How do you think about the glide path towards your 15% target, do you have any sense of timing or certain areas of the business that you need to work on or what sort of the road map for you?

We sort of always think about the business in terms of the core economic earnings, I mean we are a little bit [indiscernible] to put that in our earnings releases and some, because it sort of sounds sometimes like you are trying to justify bad results. But I would say two things, for the last two years, we have been pretty close to that 15% ROE. We think we are now sort of getting some tail winds just generically at a high level. We have put in a slide in the last quarterly call, which showed the impact of interest rate increases on our business, which have now been magnified, because of the Sterne Agee acquisition. That alone if we see on the two or three interest rate increases of 25 basis points, that alone could add about four percentage points to our ROE. So, I think we feel at high level very confident that if we continue on our current track with the sort of tail wind we have that is achievable. If I had to sort of look at this quarter, what I would say is if you sort of normalized our earnings for bad debt, the mark-the-market on our sort of interest rate enhancement program we have, which we have explained a number of times, if you look at sort of the fact that we are effectively expensing with ICAP bill, we are expensing the purchase consideration, so we are not sort of raising good will, but we are expensing it, because we get a tax yield on that. If you adjust for all of those things, I mean this was more like to $0.70 a quarter, right? So from our point of view, we are looking at - it is still below 15%, but it's sort of more like 10%, 11% ROE if you look at the core operating results of the business. And those things will reverse at some point. So, it looks like we sort of [indiscernible] our target, but I'm sure we feel looking at the core operation to see that fall behind. Did it make sense?

Yes. And then, I will ask one more unless there is others in the queue, but we have had a couple of rate increases and it's not yet expressing itself in your yield you are earnings on the securities portfolio. When do you think you start to get that kind of upward bias, do you start to see it next quarter or two quarters from now and average yield start to move?

Yes. So, a couple of things. So first the interest rate increase we saw, which will impact the customer assets we hold in short-term securities, which is about 40% of our total float. This was held in short-term securities. That increase happened in - I think was December right. So that really didn’t come into play at all for the quarter we are reviewing now. So we should see a pretty immediate impact at least for that portion of our floats, our customer floats and obviously, as we see subsequent rate increases that should come through pretty fast. In terms of the portion of our assets where we have invested further down the curve, we have a ladder program; it has a duration at the moment of around about 20 months. We are earning on that ladder higher rates than we would if we had kept that floats short, on the short end of the spectrum, so it’s clearly adding value. It is adding noise in terms of the mark-to-market, but our view is always we manage the business for a good economic results. That ladder is starting to roll off, so for example, we just recently in the last two weeks had a tranche roll off and it was earning something like 50 basis points and we switched it to the back end of the ladder and its now earning 150 basis points. So we should see the average yields on the invested portion of our portfolio, probably increase and it should settle all things being equal at around 120 basis points. And I think at the moment we are at about 80 basis points. So I would say that will take close to probably 18 months to achieve or maybe 12 months to see some real impact. So I think the sort of upside potential over the next year 18 months is an enhancement of something like 50 basis points on our investments, all things being equal. And I think what you will see is sort of 40% of our floats you will see very immediate impact when we have short-term rights go up. I hope that helps you. It would probably be helpful if you went back to our earnings deck from last quarter, we actually put a table in there. We estimated that once the full effect of interest rates had come through, a total of a 100 basis points increase I think was about 4.8% ROE impact. Now that would take some time to realize obviously, but that’s how we calculated it.

Okay. And then just on the bad debt expenses. What is your view on how likely it is for that to be recurring or how much of what occurred is true.

Yes. I think we have had conversations about this before. I mean this is very real risk we have got in our business. We have 15,000 customers and we rely on those customers to honor the obligations stuff. We obviously have a very what we think rigid and robust credit process to assess all of that risk. But it is enclosable to think that you are not going to have some bad debts in your 15,000 customers, right. So we think that on average somewhere between $5 million to $8 million a year should be the high order mark for bad debts. We would like to see that happen with lots of smaller amounts rather than big chunks. But this was definitely an extraordinary situation based on market circumstance, we have never seen in the metals market. I mean, we do stress test and so on and this was sort of off the scale of probability. And you know the result was in those environments, our customers sometimes don’t pay as much attention to their liquidity, stress situations as we do and they end up not being able to make margin calls. So I would say that this was probably exceptional, I think we would like to see probably more like half of that 2.5 million sort of as a reasonable quarterly amount, but it's probably as always, if we look back three, four years, we seem to have it come in big chunks when we have market kind of turmoil. So anyway, I would say if you want to model it up, I would say somewhere between five to eight is what I would bracket it a year and certainly we are trying very hard to be well below that. I would say that’s kind of realistic expectation.

Thanks you answering all my questions. I appreciate it.

Well, thank you. Operator do we have any other questions?

[Operator Instructions]

No, one?

At this time, I'm showing no further questions. I would like to turn the call back over to Sean O'Connor for closing remarks.

All right, well thanks very much for attending the call and we will speak to you again in three months time. Thank you.