How Jefferies broke into the big league
The last big Wall Street broker-dealer has had a spectacular run in the last 20 years. It now wants to build ‘the best world-class global investment bank’.
When Jefferies chief executive Rich Handler and president Brian Friedman wrote their annual letter to shareholders in January 2022, they were in jubilant mood. The firm was celebrating its 60th anniversary with record results.
“What a year!” they began.
The sentiment was hardly surprising. Jefferies Group’s annual net income had more than doubled to $1.7 billion. Return on adjusted tangible equity was 24.5%. Revenues of $7.1 billion were up 37%, with investment banking contributing $4.4 billion, up 84%.
From a market share of just 0.1% in investment banking in 2000, the firm now reckons it has captured about 4% of the $100 billion market for advisory, equity capital markets and leveraged finance – the investment banking products where it seeks to compete. It is a sizeable increase and puts the firm in eighth place globally, but it still represents a small share in absolute terms – something that gives Handler confidence that there is plenty of room to grow.
Jefferies has been promoting and hiring intensively, ending 2021 with 24% more managing directors in investment banking than it had the previous year. Total staff increased by 15%. The change reflects the firm’s gradual pivot around its investment bank as it continues to reduce its legacy merchant banking portfolio.
In 2021, the firm’s ability to compete got a big boost from its alliance with Sumitomo Mitsui Financial Group (SMFG), which is targeted in particular at its US leveraged finance and private equity business. This gives it more heft to bring to its Jefferies Finance joint venture with MassMutual, as well as cross-border M&A involving Japan.
Fixed income continues to expand, with the firm’s $1 billion revenues in 2021 up more than 40% from 2019 after a record year in 2020 that was driven by the unusual pandemic-related conditions.
They are moving from strength to strength in building out the platform across banking and equities, and their quality on the credit side is also showing
“They are moving from strength to strength in building out the platform across banking and equities, and their quality on the credit side is also showing,” reckons Tim Piechowski, portfolio manager at Alpine Capital Research, who first took a position in the stock in 2015 and has been adding to it since. “Where do they settle post-Covid? I think you can definitely use 2019 as the base at the low end.”
In their letter to shareholders, Handler and Friedman attributed the firm’s performance “first and foremost to its ability to deliver distinct industry, market and strategic insights to clients.”
But they also put it down to its “special sauce”. What do they think that is?
“It’s people and culture,” Friedman tells Euromoney. “Jefferies has evolved every day, but the essence of its culture has decades of roots, probably longer than the 20 years that we have run the firm together and probably longer even than the 30 years that Rich has been here.”
As usual, luck has played its part. Regulation – since the global financial crisis but also dating from before that – has weighed heavily on big banks. Jefferies, as the last big broker-dealer in the industry, has been able to sidestep at least some of it.
Consolidation among US peers, with bulge-bracket firms gradually acquiring smaller franchises over the years, opened up gaps that Jefferies moved quickly to fill. And retrenchment among European investment banks gave it opportunities to expand elsewhere.
Partly because of its lighter regulatory burden, competitors have for years liked to portray Jefferies as something of a renegade, operating with higher leverage than peers, maintaining a big prop trading business, willing (and able) to do deals that others could not.
Friedman certainly doesn’t buy all of that characterization now.
“I think that portrayal is an effort to separate us and suggest that we are not doing what others are also doing,” he says.
He notes that a number-one position in US leveraged buyout loans – which he and Handler were able to report to shareholders – doesn’t come from doing edgy deals.
“Highly leveraged deals don’t represent even 10% of the opportunity,” he says. “Either you are doing the mainstream business or you are not.”
Friedman says that the firm’s attitude to risk in leveraged finance is not meaningfully different now from what it has ever been and that the Sumitomo Mitsui Banking Corp (SMBC) partnership will allow it to expand that franchise without driving up risk. The Jefferies Finance joint venture with MassMutual is now in its 18th year, and Friedman says that its success has come from its integration with the M&A advisory franchise rather than simply lending wherever it can.
“We are not a lending shop that is going out looking for loans – we are an ideas shop where loans are part of what we provide,” he says. “When we sell CLOs [collateralized loan obligations] out of that joint venture, people believe in the quality of our mid-market loan portfolio.”
Jefferies is a story of Wall Street in a world that doesn’t have a lot of Wall Street left in it
And while he concedes that the firm has been nimbler than some, he puts its success down to effort and consistency: “Jefferies is a story of Wall Street in a world that doesn’t have a lot of Wall Street left in it.”
When he started out in the financial services business, Friedman was surrounded by firms that were privately owned partnerships. But, as he puts it, the price of poker went up – the ante got bigger. Crashes blew up some firms, but Jefferies managed to pick its way through the debris and keep going. And Friedman argues it has got as much from staying the same as it has from changing.
“We didn’t change who we are,” he says. “As a management team, we are servant-leaders. We have consistently strengthened the breadth and depth of the firm’s capabilities. It takes patience, perseverance and persistence.”
That persistence extends to management. Handler, who joined in 1990, and Friedman, who joined in 2001, are unusually long-tenured in their roles at the top of the firm – especially by the standards of big European banks and many US peers.
“There has been a consistency of leadership and mission that has been a challenge for some competitors,” says Friedman.
For all that consistency, Jefferies did also change – and Friedman argues that the evolution of the firm is critical to understanding where it finds itself now, riding high as economies pick their way gingerly out of the coronavirus pandemic. Not for nothing did Handler highlight in one of his monthly ‘Jef_All’ emails to staff last year that Friedman, aged 64, “thinks in decades”.
And it is clear from talking to Friedman and his colleagues that Jefferies is not done with its evolution yet. The ambition is to build nothing less than “the best world-class global investment bank”, Handler said in December.
It is winding down elements that are not core to that. It has already cut back heavily on the merchant banking business that it had embarked on back in 2001. As Handler puts it, “it is now the tail and no longer the complicated dog.”
The current ambition is very much on the mind of Chris Kanoff, now global head of investment banking and a 30-year veteran of the firm. Kanoff took over the role after Ben Lorello retired in 2020.
“Twenty years ago, we thought we had something,” he says, “but it was largely a high-yield franchise competing with the likes of DLJ and Credit Suisse. When Rich became chief executive, he brought a lot of courage to try to build on that.”
Kanoff can’t stress enough the importance of a relationship approach rather than a transactional one – an emphasis that he says has characterized his whole time at Jefferies.
“In this business, it is hard to get a client, and when you do you have to bring them a lot of expertise – you don’t get second chances,” he says. “The results show up in what we told investors in December: that 70% of our business now is repeat business.”
The sector build that Friedman describes has taken shape incrementally, says Kanoff. When the firm started its consumer group, it was built around a restaurant-sector franchise. Now it includes areas such as broader food retailing, beauty and cosmetics. Industrials started from a small capital goods practice, before adding areas such as aerospace and defence.
In this business it is hard to get a client, and when you do you have to bring them a lot of expertise – you don’t get second chances
“It has been steady development over the last 20 years,” says Kanoff. “We have built groups like healthcare, consumer, industrials, technology and FIG [financial institutions group] and then gone into each of those to build sub-sector coverage.”
Kanoff is not alone in stressing that the way Jefferies looks at itself now is far more around sector than product. He thinks the firm now has no meaningful gaps in product.
“In 2019 and 2020 you saw a culmination of the project, with us being in the top 10 in investment banking,” he says. “We can compete with anybody – and that was not always the case.”
Nowhere is the investment banking push more evident now than in Europe. Dominic Lester, who runs European investment banking, joined Jefferies in 2010 after being attracted by the chance to join a pure-play investment bank – something that was becoming a scarce commodity in the post-crisis world.
Lester came from UBS, having started at Dillon Read, and he liked the equities and leveraged finance distribution platform that Jefferies could build off.
At that time Jefferies had some investment bankers in the region, mostly focused on sell-side M&A, and it had picked up a clutch of equities staff from Bear Stearns’ European business when that firm collapsed in 2007.
But in Europe the firm was a long way from its ambitions to be something approaching a full-service operation. Fixing that was a big priority for Lorello when he was at the firm, and it is a project being continued by Kanoff and Lester.
The acquisition of Hoare Govett in 2012 gave it immediate heft in the UK, with 55 staff coming on board and giving Jefferies corporate broking muscle overnight. It now boasts more than 80 broking clients.
While Jefferies had developed an M&A franchise of sorts in the UK, it was skewed to specific sectors such as health and technology and was largely for private deals involving financial sponsors. What it lacked was a history of substantial public M&A.
Targeting that now is head of UK investment banking Philip Noblet, an M&A banker that Jefferies finally lured over in late 2018 after a career in the US and Europe at the likes of Deutsche Bank, Merrill Lynch and HSBC, where he also ran UK investment banking.
Noblet has converted the broking effort into “proper M&A”, says one colleague. Last year, the firm ranked fourth for UK-related M&A, after advising names such as Signature Aviation and Wm Morrison, both of which were acquired by private equity firms in multi-billion-pound deals.
It is a performance that enables Jefferies to continue to attract big names. Philip Yates, who retired from Perella Weinberg, where he had been a founding partner in 2006, and who had previously worked at SG Warburg and Merrill Lynch over his 30-year career, joined Jefferies in January as vice-chairman in UK investment banking.
Jefferies probably took longer than it would have liked to figure out exactly the kind of banker it should be hiring to build its business. Rather than trying to find someone with a miraculous combination of servicing corporates and sponsors, all from an equities mindset, what it needed was coverage bankers with a strategic mindset, whom clients could see as trusted advisers rather than as mere M&A auctioneers.
Yates and Noblet fit that pattern, as do colleagues such as James Thomlinson and Paul Bundred, who joined with Noblet from HSBC.
In Germany, it is a similar story. The firm now has 20 investment bankers, including four managing directors. Jefferies had opened an office in Frankfurt in 2006, after grabbing a team from KPMG’s operation there.
In 2019 it hired a group of five bankers from Berenberg, headed by Oliver Diehl, a former colleague of Lester’s at UBS and someone he describes as “an origination machine”. Other senior hires followed, including sponsors banker Ulrich Boeckmann from Barclays to run coverage, and industrials specialist Berthold Mueller from BNP Paribas.
But as much as the firm has been building in specific geographies, Lester echoes colleagues such as Kanoff in maintaining that the firm’s priority is to lead with sector expertise.
Four years ago, it took a power team out of Royal Bank of Canada. Last year it lifted five managing directors from Credit Suisse’s FIG operation, including Alejandro Przygoda, the global head. FIG coverage was one area where Jefferies bankers concede the firm was lacking until that move.
In both cases, the cultural appeal of a more partnership-style structure was part of the attraction for the moves, say bankers – although it also didn’t hurt that Jefferies offered more scope for financial reward by virtue of being more ‘eat-what-you-kill’ than bigger banks.
Friedman is evidently happy with how Jefferies has built itself over the last 20 years. That’s not to say he wouldn’t want at least some of what the bulge brackets can boast – but only if he could bolt it on to Jefferies’ culture.
“If you gave me the big banks’ balance sheets, we would have a bigger business,” he says. “But I would rather have their tools and our people.”
And those people seem to buy into that philosophy.
“This is literally the most pleasant place I have ever worked,” says one managing director who has been at Jefferies for more than 10 years. “It has good structures, compliance is good; I love the fact that it has manageable risk and is not going to be blown up, and it has a focus on high-margin fee revenue.”
He is not the first to say that it is easy for a joiner to quickly meet all the other MDs they will be working with, and he echoes Friedman when he describes the atmosphere as akin to a 1990s investment bank. But if the firm sometimes sounds like it is trying to be a boutique bolted onto a distribution platform, that’s not quite how this banker sees it.
“It is much more hand-in-hand than bolted on,” he says – a nod to the ever-present alignment theme.
The sense of it being a hybrid of the two is true enough, however. Bankers across the firm tell Euromoney that while boutiques have their attraction for rainmakers, their lack of distribution platform and product variety means they don’t suit everyone.
“We’re flat, non-bureaucratic and our people are nimble, humble and have a passion to build their company,” Handler told shareholders in December. “This is very rare in our industry today.”
It is a theme that others repeat.
“As visionary as Rich and Brian are, a big part of Jefferies’ secret is hiring people that want to be a part of it, that share the excitement of building the firm,” says Kanoff.
If you gave me the big banks’ balance sheets, we would have a bigger business… But I would rather have their tools and our people
As an example, he cites Michael Stock, the hard-charging chief executive and head of investment banking for Jefferies Australia. Joining from Credit Suisse in 2018 when Jefferies was building its business in the country, he now presides over a substantial franchise.
The challenge for Jefferies is to continue this growth while still keeping that flat structure that Handler talks about and his bankers say they like. There is doubtless some leeway before that becomes almost impossible.
As Kanoff likes to point out, in headcount terms Goldman Sachs is the next biggest comparable – and it has 10 times the staff that Jefferies has. There is surely plenty that Jefferies can do with somewhere between 4,500 and 40,000 staff without ruining what it is.
“What Covid did in the world of business is separate those that had momentum and those that had problems,” says Friedman. “If you already had problems, it didn’t make it easier for you, but if you had momentum, then Covid gave you opportunity.”
He is talking about the world of his clients, but Friedman could easily be referring to Jefferies itself. He certainly sells the story well. Another of Friedman’s traits that Handler identified in last year’s memo to staff was his endurance (“Nobody has a schedule like Brian. Nobody even walks as fast as Brian.”) It comes through loud and clear – there isn’t a business that he doesn’t want to talk about, and probably at more length than even Euromoney can spare the time for.
Those lower down in the ranks say that Handler, Friedman and any number of other senior staff can be completely committed to the business because the firm is a pure-play investment bank.
“When we wake up in the morning, we think about investment banking because there is nothing else to think about,” says one.
Friedman does nonetheless think about some other things – he worries about geopolitics and the polarization of the powers, and how there seem to be more cross-currents in the macro environment than ever before.
But he reflects that it was not so long ago that coronavirus brought concerns that were much more personal. Jefferies’ CFO Peg Broadbent died at the age of just 56 after suffering with the virus early in the pandemic, an event that shook the firm to its core.
What Friedman thinks about in 2022 is whether everyone at the firm has done enough for clients on a given day, although he thinks it is at least something within his power to tackle.
“That we can fix,” he says. “If we have a mediocre day, we can rev it up tomorrow.”
Jefferies in Europe: building an ECM franchise
One area where Jefferies has been pushing hard to capitalize on its heritage is equity capital markets, where it now ranks 10th globally. And within that, its European progress has been a particular focus.
In the region’s bookrunner rankings, the firm was seventh in 2021 by volume and fifth by number of deals. As recently as 2019, it did not figure in the top 10.
Part of its development has been down to the early identification of areas where the firm thought there would be growth. In ECM, two of those have been special purpose acquisition companies (Spacs), in which activity exploded in 2020, and at-the-market (ATM) offerings, where filings have more than doubled since Jefferies targeted the business to more than 500 in 2021. The firm now ranks number one in ATM programmes.
The European performance has partly been driven by its build-up in the UK, notably off the back of its broking franchise developed out of its Hoare Govett acquisition. But another big step was bringing heavy hitters on board.
One frequently referenced by those outside the firm is Rob Leach, who was hired as head of European ECM at the end of 2015. Leach has a sound ECM pedigree from UBS, from the days when the Swiss bank was a European leader in the business, but with the added advantage of a stint on the buy side at BlackRock. Those who have competed with him over the years rate him highly.
“We have built a team around Rob,” says Dominic Lester, who runs European investment banking. “It is the hardest business to get right because it requires the most coordination. But we spent time looking at how you get IPOs done, how you get investors on board.”
Depth of distribution
That is also a topic close to the heart of Jesse Mark, Jefferies’ global head of ECM and another ex-UBS banker. When he joined Jefferies in 2009, he saw it as one of the few that had retained a traditional platform, with an equity distribution effort that looked increasingly differentiated relative to its competitors.
Jefferies’ broader account coverage than peers was one of its key attractions for him. He reckons that about half of demand in ECM deals comes from firms with more than $25 billion of assets under management, of which there are about 125 in the US.
“Those are the types of accounts that most firms focus on, because they have the ability to pay multiple fees across products,” says Mark. “But there is another 50% of demand that comes from accounts that are smaller than that – and that universe is closer to 650 in the US.”
It is a similar dynamic in Europe, he says, and the key is that those smaller accounts are equally important from the perspective of demand. “We cover both areas – all of the big accounts, but also perhaps 90% of the smaller ones,” he adds.
The pitch to issuer clients is that this depth of distribution is critical when it comes to establishing a strong shareholder base. The smaller accounts might not be as consistent because they are more focused, but they can be highly relevant when they are a good fit for a particular investment story. Jefferies wants to be the best at accessing what its bankers often call “the incremental buyer”.
The firm makes a virtue of “covering the tail”, as one banker puts it, noting that it now has about 1,500 paying institutional clients in its European equities business alone. The electronification of equity markets in the early 2000s, which has seen the profit to be made from voice trading fall precipitously, left many smaller investors largely unserved by bigger houses. Regulatory developments such as the EU’s second markets in financial instruments directive (Mifid II) have also contributed to the thinning of analyst benches, something that Jefferies has resisted.
If covering the entire waterfront is such a good idea, why doesn’t everyone do it? For Mark, it depends on how a business looks at its equities group – and how it relates to its ECM franchise.
“If the priority is solely to generate revenue for the equities business, then you will create a model that generates the highest return – and in which case a focus on the largest accounts from a fee-pool perspective makes sense,” he says. “But what makes us different is that we recognize that those smaller accounts can be equally relevant to the equities business and to the new-issue business.”
Alignment and integration
This thinking goes to the heart of how Jefferies bankers – all the way to the top – say the firm approaches the development of all its businesses. Handler described to shareholders in December how in 2015/16 the firm repositioned its equity and fixed income businesses “to align them more fully with our investment banking business.”
Time and again, this concept of alignment is what Jefferies bankers return to. One banker on the primary side describes how he talks to his secondary markets counterpart 10 times a day.
Peter Forlenza, Jefferies’ global head of equities, argues that this integration is where the firm can often stand out from peers.
“The relationship is more complementary than ever,” he says. “I don’t believe every firm is as integrated as we are – we believe that we have built a research and a differentiated distribution platform, complemented by sales and trading, that meaningfully helps clients when they go public and in their capital raises.”
It is also behind Lester’s belief that the depth of the investor-coverage side of the business is so critical to the success of Jefferies in ECM. “We think of this business as point to point, not automated,” he says. “You need to be bringing investors on board six months before an IPO.”
It is something that others have also recognized in Jefferies, noting that it often seems to sit more in the bracket of old-style brokers like Numis, Berenberg and Peel Hunt in not going all-in with the hedge fund community or just the biggest long-only accounts.
It is why one specialist adviser says that he is happy to recommend Jefferies to issuer clients he is working with, particularly for those in the mid-cap segment.
“They have a totally different approach,” says this adviser. “Everything we know about mid-cap ECM in the last 10 years suggests that the bulge bracket is not fit for purpose in that space, either at IPO or in the aftermarket. The big firms can do wonderful things for large caps, and they make great prime brokers, but they are less suitable if you are a smaller issuer wanting a broad shareholder base.”
Lester says that the benefit of the firm’s focus on the broadest possible pre-deal investor education came to the fore in the Covid pandemic, when lockdowns sent issuers and investors to their home offices but also made them more reachable than ever through video conferencing. The €115 million Frankfurt IPO of Brockhaus Capital Management that Jefferies led with Citi in 2020 was Germany’s first completely virtual IPO. Jefferies pulled in about 80% of the demand.
The importance of high touch
When Peter Forlenza, Jefferies’ global head of equities, joined from UBS in 2013, the firm sat outside the top tier of global equities businesses that were true partners to the Street. With the franchise now in the top eight by revenues, he says it is clearly there now.
It ranks eighth globally for equities cash trading; in US electronic trading it ranks fourth, and one investor client notes that the firm’s abilities in dark pools have improved materially in recent times.
With $1.3 billion of revenues in 2021, the equities business has doubled since 2016, and about 40% of that performance now comes from Europe and Asia.
Forlenza says that the Covid pandemic shows the benefit of the firm’s focus on the traditional high-touch sales and trading business in the US, even as others have pulled back. One ranking Jefferies’ bankers are particularly proud of is Greenwich labelling the firm the most helpful execution broker during the coronavirus crisis.
Forlenza also stresses the importance of being able to offer research and other content, and dismisses the notion that sales must inevitably become a kind of glorified concierge function. He argues that firms still need experienced staff that can interpret the mass of available information into real investment ideas.
“The largest institutional investors have only got bigger, and they continue to need a differentiated service because they can’t trade everything in the machines,” he says. “The notion that it is all just machines now is not correct. Those that approach it in that way are not going to be adding value for their clients.”
The firm now has about 400 analysts covering more than 2,750 companies. Jefferies was ranked top in small and mid-cap research globally in 2021 by Thomson Starmine, having ranked eighth in 2016.
Outside the US, he says the firm’s client breadth is expanding in all regions. In the last four years the number of accounts it is dealing with in Europe is up 32%, while in Asia it is up 62%. Even in a mature business like the US it is up 18%.
“Last year we were ranked the number one foreign broker in Japan and India,” Forlenza adds. “You would not have expected that a few years ago.”
Forlenza relocated to London in 2018 as the firm sought to translate what it had done in the US to Europe.
“We believed the incumbent Europeans would continue to have challenges and would be re-evaluating their business model – and that has proven to be the case,” he says.
One of the first things the firm did then was grab the convertible bond team from Deutsche Bank, which had been the leader in that area for years. Jefferies had a top-three convertible bond franchise in the US, so the feeling was that this would complement that well.
Forlenza acknowledges that Jefferies is not yet where it wants to be in Europe, despite its growing presence in the UK, the Nordic region, Germany, Switzerland, France and Italy. But he reckons that over the last three years, it has got about 70% of the way there.
One area he is focused on right now is equity derivatives and strategic equity solutions, where the firm had a meaningful presence in the US but was lacking in Europe. Global head of strategic equity transactions is Andrew Yaeger, a Deutsche Bank veteran that Jefferies hired in 2021 along with Paul Stowell.
Later in the year, the firm hired Enrico Magnifico from Goldman Sachs to build a strategic equity business in Europe, Middle East and Africa; and in January 2022 it hired Andrew Mitchell from Bank of America. He had run all of EMEA equities trading but is a derivatives expert by background.
Taking over the middle tier
Brian Friedman enjoys tracing what he sees as the distinct periods that provided opportunities Jefferies was able to seize, the first of which was a regulatory shift through the 1990s, culminating in the 1999 repeal of the 1933 Glass-Steagall Act that had restricted the scope of big banks.
Those banks could now branch out into the securities business, and they duly snapped up big names. Salomon Brothers was acquired by Travelers in 1998, which then merged with Citicorp later that year. In 2000, UBS bought PaineWebber and Credit Suisse bought Donaldson, Lufkin & Jenrette. In 1997 NationsBank picked up Montgomery Securities, which ended up inside Bank of America when that firm merged with NationsBank in 1998. In 1999, Chase Manhattan bought Hambrecht & Quist, later to be one of the cornerstones of investment banking at JPMorgan.
Rather than being intimidated, Jefferies executives were watching all these moves with growing confidence. An internal review in 2001, as Handler took over as chief executive, observed that the middle market was being swallowed up by the big banks – creating a hole that Jefferies could fill.
“Each of them was essentially buying a platform,” says Friedman. “Those platforms were tiny by today’s standards, but they were the basis for what everyone is using now – capabilities that existed in the 1970s. “At that moment, we said that the middle tier had been eliminated – let’s take over that space.”
At this point Jefferies was still small, although it was already branching out from its early days as an equity broker. Grabbing dozens of staff from the collapsing Drexel Burnham Lambert in 1990 had taken it into other areas of investment banking, such as high-yield bonds.
In 2000, it had about 1,000 staff and its annual revenues were just $617 million – although that was nearly double the revenues in 1996. Last year, Jefferies’ headcount topped 4,500, up 15% from 2020, and revenues were over $7 billion.
The post-2001 expansion was anchored on gaining sector expertise, says Friedman. The firm bought a string of smaller advisory franchises spanning aerospace, energy, technology, private equity placements, media and more.
Then came the calamity of the global financial crisis, taking out firms such as Bear Stearns and Lehman Brothers. Others, like UBS, stepped back from ambitions to be global full-service investment banks – and again an opening emerged for Jefferies. “Between 2009 and 2011, we again embarked on a lot of hiring, with a meaningful sector and product focus,” says Friedman.
This was the time of the famous healthcare land grab in 2009, when Jefferies hired the UBS team run by Ben Lorello, the ‘medicine man’ with a reputation for driving his staff hard. Lorello went on to run investment banking and capital markets at Jefferies until his retirement in 2020. Friedman says that healthcare has been the biggest single industry success for the firm.
Jefferies was also building in other sectors, such as industrials, as well as expanding its product footprint outside the US, notably buying Hoare Govett in the UK in 2012 to give it a foothold in the corporate broking business and the equity capital markets work that comes from it. The firm also spent the post-crisis years building up in European rates, securing primary dealerships across the continent while other banks stepped back.
By the mid 2010s, Jefferies’ revenues were hitting $2.5 billion.
What Friedman identifies as the third wave of opportunity came in 2015/16, with signs that investment banking among the European banks was starting to struggle as financial and capital pressures took their toll and regulation sank its teeth into what had been profitable areas. The likes of Deutsche Bank, Barclays and Credit Suisse were all going through their own existential debates.
That allowed Jefferies to grab more share, including outside the US. But the pre-Covid period also saw the firm rethink how it approached its secondary businesses in equities and fixed income, bringing them into closer partnership with the investment banking franchise that it was building, rather than simply expanding everything in an uncoordinated way.
also meant backing that up with a growing research offering, as well as shifting the balance of the firm towards repeat, fee-paying client business and away from its reputation for prop trading.
Friedman sees each opportunity for the firm emerging from the previous one: It was the 1997 to 2001 period that created the opportunity between 2001 and 2007; it was the 2007 to 2009 crisis events that created the ability to take share in 2010 to 2015. And then it was the third wave of mutation among the Europeans that paved the way for Jefferies to push on with its development outside its home market.
“We are the one that keeps going into the void to take an opportunity,” he adds.
When it comes to the performance of the last two years, Friedman is the first to acknowledge that the Covid era brought a flood of policy-driven liquidity into markets that helped to drive the firm’s results. But he notes that it was already on that trajectory. “Before Covid was even known, we had finished 2019 with momentum,” he says. “And we started 2020 with our best quarter ever.”