- The shares rose as much as 8% after agreement was announced
- Cowen says it's targeting 57 employees to bring over from CRT
Cowen Group Inc., the New York-based boutique investment firm, rose as much as 8 percent after announcing a deal to buy most of CRT Capital Group’s credit businesses.
The shares, which had lost 7 percent this year through Monday, recouped most of that decline as of 2:33 p.m. in New York, trading at $3.81.
The acquisition gives Cowen a credit-trading business that’s poised to benefit from “a choppy market,” Cowen President Jeffrey M. Solomon told investors on a call after the deal was announced.
“Credit trading is going to be way more interesting than it has been over the last five years,” Solomon said. The purchase allows Cowen to “line up in front of what we think is going be a huge opportunity,” he said.
Prices for the riskiest corporate debt fell last year, and Moody’s Investors Service said last month that the number of U.S. companies at the highest risk of default had approached levels not seen since the worst of the financial crisis. That creates opportunities for money managers who invest in distressed securities, and the brokers-dealers who help them trade.
While Solomon declined to disclose a purchase price, he said on the call that it wasn’t a material cost. The deal will “mildly” add to book value in the first year, Cowen said in a statement.
Small companies such as CRT, which is led by former Lehman Brothers Holdings Inc. executive Theodore Janulis, have tried to wrest trading business from large Wall Street banks in the years since the crisis. CRT, which is backed by private-equity firm Aquiline Capital Partners, has had limited success with that strategy in some of its credit-trading businesses. In the past 12 months, CRT has exited or scaled back trading operations in mortgage bonds and U.S. Treasuries.
Some banks have been rethinking their distressed-securities businesses. The slumping value of distressed debt triggered a loss last quarter for Zurich-based Credit Suisse Group AG, and the business no longer belongs in the firm’s strategy, Chief Executive Officer Tidjane Thiam said Feb. 24.
That’s left a place for smaller firms like Cowen to jump in, according to Mike Adams, an analyst at Sandler O’Neill & Partners LP in New York.
"They’re definitely filling a void in the market as some of the bigger dealers retrench,” Adams said in an interview. “Cowen is not a bank holding company, they’re not subject to some of the burdensome capital requirements that some of their larger peers are.”
Cowen is hoping to bring on 57 CRT employees, and has already signed employment agreements with some key workers, Solomon said.