(Bloomberg) — B. Riley Financial Inc. suspended its dividend and warned of losses as the boutique investment bank wrote down a portion of its stake in Franchise Group Inc., a troubled US retail business. Its shares plunged in early trading.
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The Los Angeles-based firm expects losses for the quarter ended June 30 to be between $435 million and $475 million, according to a statement Monday that included preliminary estimates for the results, which would compare with a profit of about $46 million a year ago. The results will add to a loss of $49 million in the first quarter of this year.
The bulk of the loss will be driven by a markdown related to its investment in Franchise Group, or FRG, an owner of retail chains in which B. Riley is among the biggest shareholders, the bank said. The writedown is expected to be between $330 million and $370 million.
The firm’s shares were down 36% to $10.80 at 7:56 a.m. in early New York trading. The stock had already fallen more than 80% since the end of 2021 amid the concerns about its investments.
B. Riley helped FRG’s then-Chief Executive Officer Brian Kahn take over the company a year ago in a transaction that saw the bank take a 31% stake. The deal has since been troubled by allegations about Kahn’s role in the collapse of a hedge fund named Prophecy Asset Management.
“The reports concerning Brian Kahn, FRG’s former CEO, and his alleged misconduct at Prophecy have continued to create additional challenges for this investment, despite the fact that these allegations are unrelated to FRG or B. Riley,” Bryant Riley, B. Riley’s founder, said in the statement. “We believe these developments have materially impacted the execution of FRG’s business strategy, including its ability to divest or otherwise monetize certain assets.”
Short sellers have been relentlessly betting against B. Riley for the past year over soured acquisitions and its dealings with FRG and Kahn. Kahn has categorically denied any wrongdoing and said he was among those who lost money when Prophecy collapsed.
B. Riley plans to file a notice with the US Securities and Exchange Commission that it will be delayed in publishing its quarterly 10-Q filing for the period, according to the statement. This will be the third time this year that the bank is unable to file its regulatory reports on time, after missing deadlines for filing both its annual report and its quarterly 10-Q filing for the first three months of the year.
–With assistance from Jenny Surane.
(Updates with details from statement, share performance starting in fourth paragraph.)
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