There is a big sweet spot between startups and the bulge-bracket and Collins Stewart PLC is sitting right in the middle of it.
The U.K.-based investment bank, which has been in the U.S. for about a decade, said the crisis gave it the chance to break the top-25 of U.S. league tables. And it has been rushing to do just that, in part, by poaching big-ticket analysts from the likes of JPMorgan and Goldman Sachs.
FINS sat down with U.S. CEO John Abularrage to discuss the firm's focus on value, why it wants to pay higher salaries and why it would rather build a great team, than buy one.
This is part one of a two-part interview.
Tell me generally about how you've been managing and deploying your resources.
We've taken out about a third of our cost-base. A significant portion of that came from banking. Our banking focus was on micro-caps and we took the view that that part of the market's not going to come back for some period of time. So, we shut banking down.
This is firm-wide or just in the U.S.?
Just in the U.S. We had some simple cuts like the number of Bloomberg screens we had. We built a fixed-income desk ourselves, rather than paying $50,000 to have someone come in from the other side. So we've been able to cut about a third of our cost-base out, while adding 15% to what I call our producers and that goes across equities, options and international business as well.
That's 15% in terms of salaries or bodies?
Headcount. Bodies. While we've added a lot of talent to that, especially in the research area. We've done it in a much more cost-effective way. We're a much leaner business.
Where are you headcount-wise?
How many of those folks are in the U.S.?
150 or 160.
Can you give me some more detail on specifically the type of people you've been hiring?
The first thing we did was to target high-profile, brand-name analysts in spaces that we knew we needed to cover certain sectors.
We were able to take out JPMorgan's oil-and-gas team. Behind that, we took Goldman's brokerage analyst. Those were the first two big ones that really opened the doors for us and proved that we could hire brand-name, high-quality analysts that can bring a franchise to Collins Stewart.
We've hired seven sector heads now.
So you're looking for senior-level talent?
How did you go about recruiting those people?
Well, we told them the story of our firm. With the dislocation in the bulge bracket, you can come in and say 'Collins Stewart is a well-capitalized -- $150 million on the balance sheet -- U.K. bank that has been the U.S. in some form for 12 years. We're not one of these people who has decided to open a broker-dealer and hope that it works.' We've got a commitment to the market. And we can offer people clarity of renumeration -- not in the form of guarantees, but we can tie them to certain metrics whereby they'll know that if they produce, they'll get paid well. And that's a big thing.
You pay bonuses?
There are no plans to change your compensation structure?
No. If anything, compensation will go up. If the hires we made are the right hires, which I think they are, they'll get paid more.
Any junior level folks?
We're not averse to hiring junior-level workers, but I think you've got to get the seniors in the sector right before you add below them. Where we've hired senior-level people that we're comfortable with, they've brought junior-level people with them or they've gone and recruited their own associates.
I should say we've also tripled the size of the sales force in the last five months, that includes opening offices in San Francisco, Dallas, Chicago, Tampa and Boston.
What we've tried to do is get a small team well established. We're not a bulge-bracket place, so they have to be looking for a new opportunity. And we've been very fortunate with the people that we've found.
Five months ago, we were in the middle of huge turmoil, how did those conversations go? Was it: 'Here's our chance to strike?'
Exactly. Clearly if Collins Stewart was ever going to become a major player in the U.S. market, this was our opportunity.
The real goal that we talk about in board meetings is to make ourselves a needed and relevant counterparty to the buy-side...to be a full-service investment bank.
But we're still very cost-conscious and I'm not in any position to see what the market's going to give us in the fourth-quarter. I don't think anybody is. We will enter lines of businesses now that we believe are low-cost and have reasonable upside for us. We hired Jerry Levy, whose last job was running a fixed-income business at SAC Capital. We're not going to build a massive infrastructure. We're going to take the profits that his group delivers and reinvest them. That's the approach behind everything we do.
We had a lot of Eastern-facing businesses looking to raise Western money and float on some alternative exchange like AIM or Singapore. It was a feasible thing in the bull market, but plainly ridiculous when the bear market hit.
So there's a lot of business out there that you're passing on?
I wouldn't say passing on. I could spend all-day, every-day interviewing for a new line of business, whether it's a convertibles team or restructuring. A lot of those businesses take a lot of time to get in and despite the fact that they may be very profitable on a two- or three-year view, at the moment we're looking to add businesses that are already established and within a very short period of time, can produce returns for us.
What about M&A?
We've got a great M&A business in the U.K., Hawkpoint, and we should, over time, seek to build the same over here with their help.
Is the rest of the firm growing in kind?
I think opportunistically the whole firm is growing. London is looking to expand the business that I used to run, the cash-equities business. They are certainly expanding what they call corporate-brokering, what we refer to as an ECM business. The level of talent available at the moment is great and it's a finite window for us.
You see a lot of European banks expanding in the U.S. right now. Do you put yourself in that group?
It's a different situation in that we're not a European management team over here trying to hire Americans. You've got an established equity business here, which is all Americans looking to grow it. And we make money, which is the difference between what we've got and a startup.
Stay tuned for part two, coming next week.
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