Wall Street Talent War Seen as Cantor Fitzgerald Bankers Defect to China
On May 26 last year, amid the gold lighting and $60 entrees at a restaurant in Hong Kong’s Central entertainment district, Jason Boyer confided to a friend that he was leaving Wall Street.
Instead of moving to a traditional rival, the head of Cantor Fitzgerald LP’s Hong Kong branch told colleague Didier Bensadoun he was joining a boutique bank backed by China. The venture’s government-owned partner in June marked the Communist Party’s 90th anniversary with employees singing “Revolutionists are Young Forever.”
“People were surprised I’d leave Cantor,” Boyer, 42, said in an interview. “This move is evolving with the world, it’s going to the next level.”
After Boyer and three of his colleagues resigned from Cantor on the same day to join what is now called Reorient Financial Markets Ltd., Cantor sued them, accusing them of conspiring to hurt Cantor through a coordinated defection. Hong Kong’s High Court yesterday ruled they hadn’t and rejected Cantor’s claim for damages.
The dispute highlights how Chinese financial firms are becoming more aggressive in their pursuit of talent. They’re raising salaries and hiring headhunters to target veterans from established Wall Street institutions who can bridge Chinese state capitalism and international markets.
Bankers in return are lured to the world’s second-biggest economy as a source of deals, as state-owned assets are broken up and sold off and China’s industrial behemoths step up acquisitions abroad. Overseas direct investment rose 10-fold to $68 billion in 2011 from a decade earlier, according to A Capital, a Beijing-based private equity fund.
‘Story to Tell’
“Chinese banks are going out and they’ve got a story to tell,” said CK Wan, a Hong Kong-based senior partner of headhunter Korn/Ferry International who has hired investment bankers for Chinese banks. “They’ve got access to clients that others don’t and this is appealing to senior bankers.”
Bocom International Holdings Co., the overseas securities unit of China’s fifth largest lender, Bank of Communications Co., boosted pay to attract top talent in Hong Kong, Wang Dong, director of the firm’s executive office said in an e-mail. The 788,000 yuan ($125,129) that Bank of Communications chairman Hu Huaibang in Shanghai earned in 2010 is little more than the $100,000 Boyer says he earned each month at Cantor.
Citic Securities International Co., a subsidiary of Beijing-based Citic Securities Co., has increased international hiring by 5 percent annually over the past few years, according to Elaine Wong, its head of human resources. Recruitment was aided by job cuts at multinational competitors, she said.
Western companies have hit back through legal action. In 2010 in Singapore, London-based oil company BP Plc sued members of its fuel oil trading team who moved to Shenzhen Brightoil Group, controlled by Chinese billionaire Raymond Sit Kwong Lam. The case was settled out of court in October last year, according to court documents.
The lure of China for the Cantor alumni who were sued -- none of whom reads or writes Chinese -- lies in a pipeline of deals promised by China Chengtong Holdings Group Ltd., a joint venture partner in Reorient Financial’s Hong Kong-based parent Reorient Group Ltd. (376) Chengtong is a conglomerate with more than 100 subsidiaries ranging from logistics to pulp and paper. It wants foreign expertise and capital to streamline its sprawling business, sell off assets and expand overseas.
“Our goal is to create a new boutique-style investment and merchant bank that can take the Chinese out through joining assets and acquisition, and bring foreign money in,” Brett McGonegal, who left Cantor along with Boyer and is now Reorient’s chief executive officer, said in an interview. He appeared in court wearing tailored suits matched with embroidered slippers.
Boyer, a wine collector, says he knew his exit would upset his boss, Cantor’s New York-based chairman and chief executive officer Howard Lutnick, 50. Lutnick has a history of legal battles with rivals, including other brokers and the widow of Cantor’s founder, B. Gerald “Bernie” Cantor, from whom he wrested control of the firm.
New York-based Cantor spokesman Robert Hubbell declined to comment on the case or say whether the company would appeal the ruling.
No Gold Watch
“In any other company in the world you’d get a handshake and a party if you left -- maybe even a gold watch for building up such a business,” said Boyer, who says he expanded the brokerage’s Hong Kong unit from four to 75 people in three years after relocating from New York in 2004. “I’d seen enough of Cantor to know I wasn’t going to get a handshake.”
Four days after his dinner with Bensadoun, Boyer quit along with two of the firm’s top traders -- Americans Bradford Ainslie, 34, and McGonegal, 38, from the cash equities desk -- and German-born Uwe Parpart, 70, Cantor’s former chief Asia economist and strategist. Boyer became Reorient’s vice chairman and executive managing director.
Six weeks later Cantor filed its lawsuit, claiming their departures cost the Wall Street firm 29 percent of its average monthly revenue in Hong Kong.
The 5-day trial in January at Hong Kong’s High Court focused in part on Cantor’s corporate culture under Lutnick.
Boyer’s counsel, Adrian Huggins, told the court that his client knew anyone who crossed Lutnick “will be pursued to the end of the world.”
‘Years to Come’
When Bensadoun took the witness stand, Huggins asked whether Lutnick had an aggressive outburst in which he said: “I hope Jason Boyer has saved all the money he made here because he’ll need it for his lawyers for years to come.”
Bensadoun answered: “He made a comment about Jason but I can’t recollect the exact words.”
In his written judgment, High Court Judge A.T. Reyes said Cantor had failed to show it lost more than a “nominal figure” in revenue because of the departures. He also said the defendants had not conspired against Cantor.
“There is not a shred of evidence suggesting that, whether individually or collectively, they had any intention to injure Cantor Hong Kong,” he said.
Over lunch in a private room at the members-only American Club two weeks before the court decision, Boyer said he’d helped Lutnick rebuild Cantor after 658 of its employees were killed in the Sept. 11, 2001, terror attack.
“I respected him as a businessman,” said Boyer, who flew back to New York from the firm’s London office after 9/11. “I couldn’t argue with his work ethic or business acumen.”
Motivated by reports of China’s rising incomes, Boyer moved to Hong Kong to open Cantor’s outpost in the city, in an office he outfitted with a pool table. The firm traded blocks of stock for institutional buyers from the U.S. and Europe, and introduced them to Hong Kong-listed companies that had typically only dealt with local retail buyers.
His relationship with Lutnick began to sour in 2009, Boyer said in an interview. The CEO took a more hands-on approach to the business and Boyer was told that instead of a bonus he’d get a loan that might be forgiven, he said.
“I was caught off guard,” Boyer said. “It came out of the blue.”
Into the breach stepped Johnson Chun Shun Ko, a self-made businessman who specializes in buying and selling distressed assets, including the failed brokerage that became Reorient. His publicly disclosed holdings in three companies are worth $133 million, according to data compiled by Bloomberg.
The two shared humble origins. Raised by a single mother who worked as a part-time teacher in Toronto, Boyer worked odd jobs as a boy and remembers the first pair of white and blue Nike sneakers he bought for $100 when he was 12.
At about the same age, Ko fled the famine of Chairman Mao Zedong’s Great Leap Forward. In 1961, he and his grandmother left Eastern China’s Fujian province, where he recalls a year in which the only food in his village was sweet potatoes. They made their way to the then-British colony of Hong Kong. Ko’s not sure whether his age is 61 or 63 because of conflicting information about his date of birth.
By 2010, Ko was mulling a boutique investment bank backed by the muscle and deal flow of a Chinese state-owned enterprise coupled with the market savvy and access to institutional money of foreign bankers.
“I realized there is room for a local bank, but it would take years to build,” said Ko, Reorient Group’s chairman, wearing a company-branded fleece vest under his suit jacket. “How do we start? We need a state-owned enterprise.”
A friend at the State-owned Assets Supervision and Administration Commission, or SASAC, which oversees China’s biggest government-controlled companies excluding banks, introduced Ko to Chengtong.
German Navy Officer
For overseas expertise, Ko turned to an old associate: Cantor’s Parpart, who says he’s a former German Navy officer and later worked promoting the Strategic Defense Initiative, also known as Star Wars, with the Reagan Administration.
Boyer tried to sell the deal to Lutnick until negotiations broke down in August 2010, according to the court judgment.
Ko kept pursuing the deal.
“He’s like a terrier,” Parpart said. “He’s very persistent.”
Wall Street bankers were sought by Chengtong so it can better understand capital markets, Chen Shengjie, vice president of its asset management company, said in an interview in Hong Kong. Raising money to cover workers’ pensions and minimizing job losses is as important as making a profit when restructuring China’s state enterprises, he said.
“Give us tens of thousands of workers from a bankrupt factory, and we have the tools to solve the issues of social stability,” said Chen, who also sits on the board of Reorient Group. “But when it comes to the assets, we need someone else because we don’t have that experience.”
The pace of restructuring will accelerate as SASAC wants to reduce the number of state-owned firms from about 130 to about 80, according to Chen.
There are no guarantees for Boyer and other bankers tying their futures to China. Reorient Group posted a pretax loss of HK$8.8 million ($1.13 million) for 2011, largely on costs related to building up staff after Ko pulled the company out of liquidation proceedings and re-listed it on the Hong Kong stock exchange.
China’s expansion overseas reminds some of Japan’s struggle to expand, said Paul Schulte, who left Tokyo-based Nomura Holdings Inc. in 2010 to join CCB International Securities Ltd., the overseas investment bank of China Construction Bank Corp. in Beijing.
“Major funds that wouldn’t take a meeting with me before now have accounts with CCB,” Schulte, a financial strategist, said. “But people still ask: are you going to blow up like the Japanese?”
Nomura is struggling with its 2008 acquisition of Lehman Brothers Holdings Inc. operations after two top bankers who crossed over departed earlier this year. Daiwa Securities Group Inc., also based in Tokyo, cut staff in Hong Kong last month.
Boyer says the risk is not about money, even though he has two ex-wives and three children to support.
“Being backed or endorsed by a state-owned enterprise can’t hurt,” he said. “But it’s really the opportunity to build something and grow it.”