One of the South’s fastest-growing brokerages is looking more like a Wall Street bond shop.
Sterne Agee Group Inc. shifted gears last week by ousting its long-time Birmingham, Alabama-based chief executive and promoting a New York bond trader to chairman. Sterne Agee sees opportunity as banks from Royal Bank of Scotland Group Plc to Barclays Plc (BARC) shrink their fixed-income units in the face of lower trading volumes, dwindling yields and a lull in volatility that have hurt revenues.
This is the latest chapter in the history of a 113-year-old Alabama firm that’s grown to 1,700 employees from 1,000 four years ago, delving into activities traditionally dominated by the biggest Wall Street firms.
“The recent changes were not the result of a single event, but a well thought out and strategic course of action,” Eric Needleman, Sterne Agee’s new chairman and chief executive of its broker-dealer, wrote in a memo to clients distributed yesterday. Needleman was previously head of fixed income.
After more than doubling its credit trading, sales and research unit in less than four years, the private, mostly employee-owned Sterne Agee is building out its investment-banking, equities and mortgage businesses, according to the memo.
On May 23, the firm replaced its leader, James Holbrook Jr., who founded and ran First Birmingham Securities Corp. before it was consolidated with Sterne Agee in 1990. His son, William Holbrook, also departed after serving as chief operating officer.
Calls to numbers listed for James and William Holbrook went unanswered.
The firm’s new chairman, Needleman, is going to remain based in New York. He joined Sterne Agee in January 2009 after heading high-yield sales, trading and research at KBC Financial Products and started his career at Lehman Brothers Holdings Inc.
Joe Nunziata is now president and chief executive officer of Sterne Agee at the holding company level, according to a May 23 statement.
The changes underscore how the slumping bond business is splitting banks both big and small as trading profits fall. While RBS and Barclays are pulling back, Nomura Holdings Inc. (8604) has added 10 to its U.S. corporate-debt team this year and plans to expand further in a bet profits will increase along with volatility as interest rates rise. Deutsche Bank AG just raised $11 billion in capital in part to bolster its debt-trading operations.
Sterne Agee, which traces its roots to a securities firm founded in 1901 by former Birmingham Mayor George B. Ward, is trying to compete more with the top players. Since the 2008 credit crisis, the firm has acquired a London-based brokerage and hired a credit-sales team from Citigroup Inc. (C:US)
It carried out its first two junk-debt sales in the past few months, managing a $300 million high-yield bond issue by Teekay Offshore Partners LP (TOO:US) on May 22 and a $345 million offering from Seaspan Corp. (SSW:US) in March, according to the memo sent to clients yesterday.
While Sterne Agee’s headquarters will remain in Birmingham, it’s wagering that there’s enough business to keep growing on Wall Street, even if volatility and debt-trading volumes remain subdued for longer than many firms would like.
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