Dec. 19 (Bloomberg) -- Richard Handler was 38 when he made his pitch: Put him in charge of Jefferies Group Inc. and he would transform the Wall Street equity-trading shop into a full- scale investment bank.
Since Handler, then a bond trader and salesman, persuaded the board in 1999 to make him chief executive officer, Jefferies has more than tripled its workforce and revenue, joining New York’s top 10 mergers-and-acquisitions advisers. He’s vaulted from highest-paid producer to biggest individual shareholder.
Now Handler is defending the company he built, aiming to retain staff amid investor concern that Europe’s debt crisis and the collapse of MF Global Holdings Ltd. will drive up financing costs or lead to losses. Tomorrow, with its stock down 54 percent this year, Jefferies announces quarterly results. After eschewing investor conferences and television interviews that are routine for some Wall Street heads, Handler has spent the past month revealing details about his firm’s books.
“He’s an intensely private guy,” said Joseph Schenk, who served as Jefferies’s finance chief for eight years through 2007. “He’s responding to the fact that nobody was standing up, and he was prepared to stand up.”
Handler, 50, is doing what executives at Bear Stearns Cos. and Lehman Brothers Holdings Inc. refused to do, even when they were on the brink of collapse in 2008. After Egan-Jones Ratings Co. expressed concern that Jefferies may face losses linked to sovereign debt, Handler described the firm’s holdings and hedges in interviews and almost daily statements.
He published a breakdown of Jefferies’s sovereign bonds, and days later sold half of those assets to prove they were liquid. As market rumors persisted, the CEO compiled what he called “malicious lies” in a Nov. 21 letter and gave a point- by-point response. Jefferies has rallied 21 percent since.
“The two things I find noteworthy are the assertiveness with which they’re pushing back at short sellers and the level of detail in their deconstruction of their portfolio,” said Eric Dezenhall, CEO of Washington-based Dezenhall Resources Ltd., a crisis-management consulting firm. They’re “questioning the crisis-management dogma.”
CEOs across Europe soon might grapple with similar decisions as concern that nations including Greece may default prompts investors to question the solvency of some bondholders. With banks facing higher funding costs, European leaders are pushing firms in their region to raise 114.7 billion euros ($149 billion) in capital to weather the turmoil.
‘The Newlywed Game’
Yields on Jefferies’s debt remain elevated even after paring their rise in the wake of MF Global’s Oct. 31 bankruptcy. Jefferies’ $550 million of 6.875 percent notes due in April 2021 are at 90 cents on the dollar to yield 8.4 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities climbed from 75 cents on Nov. 17, after a 25-cent drop in three weeks.
The yield is about the same level as that for junk-rated, or speculative-grade, borrowers, according to Bank of America Merrill Lynch index data.
As a young adult, Handler, known to some friends and colleagues as “Richie,” appeared on television’s “The Newlywed Game.” As a banker, he’s shunned the spotlight.
“It’s never been about me,” Handler said in a statement. “It’s been about the 3,898 of us at Jefferies who worked as hard as possible throughout November to get the truth out to address misinformation, which can become a reality in dangerous times. It’s been about all of us caring passionately about our company and being keenly aware of the enormous responsibility we have to our shareholders, bondholders and clients.”
In interviews with more than a dozen past and present colleagues, Handler was described as being focused on work and uninterested in public stature.
Alma Mater Donor
Had the University of Rochester allowed it, Handler would have preferred to remain anonymous when he committed $25 million to his alma mater, said Edmund Hajim, the school’s board chairman.
Handler graduated in 1979 from Pascack Hills High School in Montvale, New Jersey, where he ran cross country, according to a yearbook. He received a bachelor’s degree in economics from Rochester in 1983 and a master’s in business administration from Stanford University in California in 1987. Before graduate school, Handler made cold calls to land an analyst job at First Boston Corp. While in college he was a bicycle messenger in Manhattan, making deliveries for Wall Street bankers.
Handler was offered a job at New York-based Drexel Burnham Lambert Inc.’s corporate finance department after graduate school. He agreed to join the firm on the condition that he work on the trading floor with Michael Milken, the junk-bond pioneer.
Peter Nolan, a former Drexel first vice president, said he agreed, granting a rare opportunity for a recent graduate, because Handler “thinks like a trader” and understood corporate finance. At 28, Handler helped Milken craft high-yield financing for KKR & Co.’s $31 billion buyout of RJR Nabisco Inc., the largest of its time.
A year after the 1989 deal, Drexel filed for bankruptcy amid a government probe. Milken pleaded guilty in 1990 to six felony securities law violations and went to prison.
Handler joined Jefferies in Los Angeles as a salesman and trader in 1990 and established its high-yield bond group.
Through his body language and tone of voice, “he never let anybody for a second believe that he wasn’t in charge,” said Christopher Allick, who worked with Handler at Drexel before helping found and run Jefferies’s corporate-finance department.
Jefferies was still primarily an equities-trading shop in the 1990s. Realizing that the model may not survive, the firm’s executives developed a plan to build the company into a full- service investment bank, adding advisory and research units, said then-President Michael Klowden. Handler had been pitching plans to diversify since he joined, according to a person familiar with discussions at the time who declined to be identified because the talks were private.
Frank E. Baxter, Handler’s predecessor who became Jefferies’s CEO in 1987, was nearing retirement and the transition wasn’t being implemented fast enough, Klowden said. Having been named to the board in 1998, Handler made his move. He teamed with John Shaw, national sales manager of equities sales and trading, and offered a management plan to directors.
“We needed to be run by guys from the business,” said Schenk, 52, in recalling the proposal. “We were young guys. We had a fair amount of energy. We were open to just about anything opportunistically.”
Handler and Shaw became co-presidents and Schenk finance chief for Baxter in 2000. About a year later, Handler became CEO and Baxter focused on being chairman. By 2002, Handler was both CEO and chairman.
“Rich is aggressive,” said Frank Macchiarola, a Jefferies board member when Handler was promoted. “His belief was he could build that company to be very successful financially and ultimately be in a much stronger position.”
It was “very appealing to the board,” he said.
Jefferies moved its headquarters to New York from Los Angeles in 2001, and Handler runs the firm from an 11th-floor office at 520 Madison Ave. in a building that houses private- equity firm Carlyle Group LP. His windows overlook the street and the equity-trading floor.
In the early 2000s, Jefferies marketed itself in presentations and press releases as catering to “middle- market” clients. Handler has since changed that, pushing the firm to compete with Wall Street’s largest investment banks.
He acquired entire teams to strengthen advisory and research coverage and hired rainmakers from some of his biggest competitors. In 2009, Jefferies lured Benjamin Lorello, 58, from UBS AG to be global head of investment banking and capital markets. Zurich-based UBS filed and later withdrew a lawsuit after 36 of its health-care bankers followed Lorello.
Since Handler took the helm, Jefferies’s balance sheet has increased more than 10-fold to $45.1 billion. The firm’s net revenue in fiscal 2010, an 11-month period, was more than triple the figure for all of 2000.
Jefferies has given about $25 million to charity since Handler became CEO, aiding victims of the 2010 Haiti earthquake, Hurricane Katrina in 2005 and the Sept. 11 terrorist attacks.
The board couldn’t pay Handler what he earned as head of high-yield -- regulatory filings show he received a $17.1 million bonus for 1997 -- so he took a pay cut as CEO, said Macchiarola, the former director.
Handler owns a bigger share of his company than the CEOs at the biggest Wall Street banks, with a 6 percent stake that dwarfs the 0.43 percent Lloyd Blankfein holds in Goldman Sachs Group Inc. and the 0.05 percent of Morgan Stanley’s James Gorman, according to data compiled by Bloomberg. Handler’s shares are valued at about $149 million.
Handler disclosed a retention policy to employees last week, telling workers that the firm would claw back 2011 bonuses from anyone who defects to competitors in the coming year.
Normally, such measures “don’t really work” because the hiring firm reimburses the amount forfeited, David Trone, an analyst for JMP Securities LLC, wrote in a note to clients. Now, with few Wall Street firms adding talent, “employees likely have few alternatives.”
While “fragile market confidence” likely will continue weighing on Jefferies’s stock price and bond spreads, the company has amassed enough liquidity to weather debt-market turmoil, Fitch Ratings said in a Dec. 6 report.
Even as Handler thrust himself into the public spotlight to defend his firm, he keeps a low profile. The CEO, a fan of the New York Giants football team, is rarely seen wearing a tie, according to colleagues, and usually doesn’t present at investor conferences. He and his wife, who have a daughter and three sons, live in South Salem, New York, a hamlet about 50 miles north of midtown Manhattan, colleagues said.
Handler will have to continue being transparent to maintain investor confidence, said Davia Temin, CEO of Temin & Co., a New York-based crisis-consulting firm.
“They’ve gone out on a limb, they’ve got to stay the course,” she said. He could “be known as somebody who fought a fight that others have lost.”
--With assistance from Max Abelson in New York. Editors: David Scheer, William Ahearn, Peter Eichenbaum
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