The financial crisis has been good to Cantor Fitzgerald Chief Executive Officer Howard W. Lutnick. It crushed Wall Street rivals such as Bear Stearns and Lehman Brothers, which made mortgage bets that Cantor and its publicly traded arm BGC Partners (BCGP) avoided. It led to increased issuance of government bonds, including the U.S. Treasuries that the two companies broker. It made smaller firms cheaper to buy and top bankers easier to hire. And it led to new regulation that could accelerate demand for the electronic trading that's core to his business.
So while other Wall Street houses are still dealing with the fallout from the crisis, Lutnick, 49, calls this "a great time to expand." He's opened new offices in São Paulo, Moscow, and Beijing. And he says he's determined to push Cantor beyond its traditional stronghold of bond brokering and make good on his long-standing ambitions to turn it into a full-service investment bank. Although it's hard to measure the success of his efforts so far, Lutnick says that if all goes well, he'd like to take Cantor public within the next two years.
Cantor is known as the firm that lost 658 of its 960 New York-based employees in the World Trade Center attacks. Lutnick, whose brother, Gary, died on Sept. 11, has steadily rebuilt a lucrative brokerage franchise while branching into businesses from e-commerce sites like Delivery.com to technology that lets Nevada gamblers bet on individual sports plays. He's had the resources to invest in new ventures, he says, because of conservative management: "We never had any debt. It's hard for bad things to happen when you have no debt."
Both Cantor and BGC act as middlemen, facilitating the trading of bonds, equities, and other financial products among large institutions. Cantor, a 65-year-old private partnership with nearly 1,400 employees, focuses on large clients such as hedge funds, insurers, and pension funds that lean on its expertise and relationships to make trades happen. BGC, which went public through a merger two years ago, has about 2,500 employees focusing on transactions among banks, a higher-volume, lower-commission business in which it relies heavily on its proprietary technology.
Lutnick is chairman and CEO of both companies, which share staff in such areas as public relations and human resources. He and executives of Cantor and BGC control over a third of BGC stock and more than 80 percent of its voting shares. "It's pretty much Howard Lutnick's shop," says Moody's (MCO) Investors Service credit analyst Peter Nerby.
BGC's profits rose 44.7 percent last quarter, to $46.5 million, on a 14.4 percent increase in revenues, to $336 million. Its stock is up almost 50 percent since its 2010 low in February. Richard Repetto, an analyst with Sandler O'Neill & Partners in New York, calls BGC "well positioned" because of its relationships with banks and the likelihood that governments will keep issuing debt. The company, which has grown by opening new offices and acquiring smaller rivals around the world, trades about $720 billion of U.S. Treasuries, swaps, and other products daily.
Cantor doesn't disclose financial results, making it hard to judge its progress. It is trying to break into the business of making commercial loans and packaging them into securities, for example, aiming to sell $5 billion of such products a year. The prospects for that business are uncertain, says Darrell Wheeler, an analyst at Amherst Securities. Issuance of bonds backed by commercial mortgages is estimated to be less than $15 billion this year, down from $234 billion in 2007.
Cantor has also hired more than 50 investment bankers whose work has yet to show up in the usual rankings that chronicle the achievements of Wall Street's elite. It has barely taken part in the $3.3 trillion of U.S. bonds and syndicated loans underwritten by investment banks since 2008. Of the more than 40,000 mergers and acquisitions since 2008, Cantor has advised on only a handful, including the acquisition by its BGC unit of London broker Mint Equities. Steven L. Kantor, who joined the firm a year ago as head of global investment banking, dismisses such lists as meaningless. "I worry about profitability," says Kantor, who's working with clients like midsize companies, real estate developers, and entertainment figures looking to do private equity deals. For example, Cantor is helping reality-TV mogul Simon Fuller raise money for a fund to invest in entertainment ventures.
Having fought aggressively to recapture what was lost after Sept. 11, Lutnick is not about to pass up opportunities to grow. One thing he says he won't do is put the firm's capital at risk by starting a large proprietary trading operation, even if that means forgoing potential profits. His goal is to be a matchmaker and distributor. "We're not gambling," he says. "I don't want to lose."
The bottom line: Lutnick is aggressively expanding Cantor Fitzgerald and BGC and hopes to take Cantor public within two years.