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Morning Coffee – The client who “tortured” top Jefferies bankers. Citi bonuses could double in three years.

If there’s one topic of conversation that bankers enjoy even more than sports, politics or cryptocurrency, it’s talking about clients.  Buysiders tend to come in two categories – the nice ones are a pleasure to work with, and the nasty ones are at least a good source of anecdotes and war stories.  And some manage to combine the two – they work you to death and give you endless grief about pricing, but somehow manage to remain loyal friends.

The latest Leadership Letter from Jefferies’ Rich Handler is an appreciation of one such client – Joe Steinberg, the founder of Leucadia.  Of course, this is one client relationship that has developed to be significantly closer than most – Leucadia acquired a 29.9% stake in Jefferies in the financial crisis and then merged with it in 2012. 

But as Handler reminisces, it all started when he and Andrew Whittaker (now the vice-chairman of Jefferies) were young bankers at Drexel Burnham Lambert.  Joe Steinberg apparently “took Rich and Andrew under his wing as only Joe can do . . . by torturing and scaring them to death to always go beyond any reasonable length to serve Leucadia, their client, to the best of their ability”.

Since Handler is famous for his dedication to client service and absurdly taxing meeting schedules, it’s difficult to conceive what he might have regarded as “beyond reasonable lengths”.  But his diligence was rewarded with loyalty; after Drexel collapsed and he went to Jefferies, Leucadia gave them a leading role in every deal they executed, despite the fact that the bank “had no business even pretending to be the investment banker to an investment grade company like Leucadia”.

And that’s the key to being loved as a buy side client.  Bankers don’t remember midnight calls, the shouting matches or even legal disputes; they remember who was there in the tough times.  When Jefferies was close to a liquidity crisis due to a “horrendous false attack” by “a rating agency analyst who shall go nameless” (it was Sean Egan of Egan-Jones), Leucadia were the ones prepared to not only provide the financial support they needed, but to allow Rich Handler to be CEO of the merged company. 

The deal was structured “in true Joe fashion” to be extremely advantageous to Leucadia, but it’s the reason that there’s still a Jefferies today.  And it’s a lot of the reason why Jefferies has the financial strength to keep growing even in tough market conditions, to the point where it’s knocking on the door of the bulge bracket with growing insistence.

Clients like that don’t come along every day.  But Handler’s story of Joe Steinberg is a useful reminder that some of the very best opportunities in banking come when an unusual set of conditions meets decades of preparation.  When the world is moving too fast for anyone to analyse or understand, it’s a huge advantage to be able to take things on trust.  And the only way to be able to do that is to be in the habit of returning calls.

Elsewhere, one of the ways in which management try to motivate the staff during tough times is to point out that although the bonus pool might not be as big as they would like, it’s being paid in stock, and that stock might be undervalued.  For example, anyone at Citigroup who didn’t like their number this year is likely to be heartened by the fact that according to veteran bank analyst Mike Mayo, the stock component could be worth more than twice as much.

Mayo is by no means a Citi permabull – they had a really bad feud a decade ago, so the fact that he’s set a price target of $119 compared to a current price of $51) carries weight.  His rationale is quite simple – all the investors he talks to hate the stock, which is why it’s cheap, but they aren’t giving Citi credit for all the cost cutting and (particularly) simplification of the business model that they’re carrying out.

Bankers are often cynical about this sort of argument.  And understandably so – Credit Suisse employees spent years hearing that they were getting paid in an undervalued currency, which turned out to be worth even less.  But it sometimes works.  Mayo’s target is set for three years’ time, which coincidentally is not far off the average vesting period of a share award. So when it comes to bragging rights over this year’s bonuses. Citi staff may find that they who laugh last laugh loudest.

Meanwhile …

Lazard was targeting ten Managing Director hires this year and they’re already 20% of the way there.  Kevin Glodowski is a restructuring banker from Rothschild, while Jason New is returning to banking from a crypto firm he founded. (Bloomberg)

The pipeline from banking to yoga influencer is now pretty well-established – Adrienne Everett (“@hippiewhohustles” on Instagram) seems to have done very well to go from JPM and Morgan Stanley to collaborations with Dior and Hermes. (Wallpaper)

The “side hustle tax” is beginning to loom for London bankers.  Yoga influencers and microdistillers will probably not see much change, but anyone starting up an organic skincare brand or jewellery design studio should be aware that Etsy and Vinted are going to share details with HMRC. (Bloomberg)

Bill Ackman seems to be at least as successful in his new activist career as scourge of university presidents (NY Post)

Bloomberg has a new advice column.  Some of the issues tackled are complex questions of modern workplace etiquette.  Others, like “what should I do if I find my boss’s profile on a hookup app?” feel like they’re more straightforward. (Bloomberg)

Unfortunate tales of employment tribunals – a former staffer at Hogan Lovells lost and was ordered to pay £4000 costs after calling them “liars and scammers”.  He then appealed the decision and was ordered to pay them another £4000 for an email campaign calling a particular partner “greedy”. (Financial News)

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Photo by Alfred Kenneally on Unsplash

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AUTHORDaniel Davies Insider Comment

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