MoneyGram reports narrower third-quarter loss

Extraordinary expenses of more than $37 million caused the $18 million loss, overshadowing continued growth in a weak economy.

By CHRIS SERRES, Star Tribune

Last update: October 30, 2009 - 8:37 PM

For MoneyGram International Inc., the extraordinary is beginning to look ordinary.

A series of messy, one-time expenses and events continue to eat into the St. Louis Park-based company's quarterly profits, overshadowing the fact that its core business of wiring money around the world is still growing amid a weak economy.

The world's second-largest money transfer company reported a third-quarter loss of $18.3 million on Friday, its second consecutive quarter of losses, despite showing unexpectedly strong revenue and transaction volumes through its network of 186,000 locations worldwide.

In fact, MoneyGram would have posted a profit were it not for a series of embarrassing, one-time expenses that totaled $37.4 million. The expenses included:

•$16.5 million for a patent lawsuit that it lost against Englewood, Colo.-based Western Union Co.

•$6 million to settle allegations by the U.S. Federal Trade Commission that it allowed fraudulent telemarketers in Canada to use its money transfer system to bilk U.S. consumers.

•$9.2 million in stock-based executive compensation and severance.

Negative earnings surprises are not unusual at MoneyGram. In the second quarter, the company incurred a $9 million expense associated with the closing of its money transfer operations in Cyprus. And in early 2008, a surprise, $1.6 billion loss on investments backed by mortgages forced the company to sell itself to private equity giant Thomas H. Lee Partners of New York and Goldman Sachs.

"The good news is that the bulk of these charges have to do with single events that are unlikely to ever happen again," said Robert Dodd, an analyst with Morgan Keegan & Co. in Memphis.

MoneyGram shares fell 14 cents Friday to $2.99 a share.

Yet, the company's global money transfer business is performing better than that of Western Union, its larger rival. MoneyGram's revenue was virtually flat in the third quarter at $304.5 million, while Western Union's declined 5 percent to $1.3 billion. MoneyGram's money transfer volume increased 4 percent, with double-digit gains in certain parts of the world, including Asia and Eastern Europe.

In a conference call Friday with analysts, CEO Pamela Patsley said the company would continue its focus on geographic expansion. "We are working our way through the list of open issues," Patsley said. "I think we're getting to the end."

However, MoneyGram has seen its revenue from investments -- once a substantial part of its overall revenue -- decline sharply over the past year, as the company shifts more of its assets into safer government-backed securities. It also faces a significant overhang of debt from the Thomas H. Lee buyout. As of Sept. 30, the company's debt was $879 million, and its interest costs consume nearly 20 percent of its quarterly operating expenses.

Chris Serres • 612-673-4308

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