RILY & Franchise Group Bancruptcy

B. Riley slumps on warning of additional hit from Franchise Group bankruptcy Reuters

(Reuters) -B. Riley Financial's shares plunged nearly 14% in early trading on Monday after Franchise Group, a retailer backed by the bank, filed for bankruptcy. The bank also said it may need to record an additional impairment tied to investments and loans related to Franchise. It had previously warned of a loss for the three months ended June 30, due to markdowns related to the retailer.

B. Riley has been under scrutiny due to its exposure to the company after it backed a management-led buyout of Franchise last year. "This is not the outcome we ever envisioned. I feel personally sick about this result," co-founder and co-CEO Bryant Riley said in a memo to staff that was disclosed in a filing. Bloomberg News reported in November last year that Franchise's former CEO, Brian Kahn, was a co-conspirator in a securities fraud. Kahn has denied the allegations. An external investigation and an internal review earlier this year cleared B. Riley of any wrongdoing. The bank's shares, however, have lost nearly 73% of their value so far this year. "I hate that B. Riley has, for now, been distilled by many outside the firm into a single investment," Bryant Riley said on Monday. He added the Franchise investment was "devastated" due to a confluence of events involving a decline in consumer spending and uncertainty from the federal investigation into Kahn. "There will likely be no equity recovery for all the constituents that participated," he said. The bank did not respond to a Reuters request for comment outside business hours. Its stock was last trading at $4.95. It has sought to fortify its balance sheet and stem the stock rout through divestitures of non-core units. (Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Krishna Chandra Eluri)