A CEO's Big Stake in Saving Jefferies
After MF Global filed for bankruptcy on Oct. 31, the spotlight shifted to Jefferies Group, another New York investment bank, as investors looked for other firms that might suffer losses on bonds of troubled European nations. When speculation arose that a liquidity crunch and bond losses would sink the company, Jefferies Chief Executive Officer Richard Handler rushed to counter it, branding those ideas “malicious lies” spread by people “whose interests are absolutely opposed to yours and ours,” in a letter to “Clients, Shareholders, Bondholders, Employees and Friends” posted on the company’s website on Nov. 21.
For Handler, 50, the 60 percent decline in Jefferies’s stock this year is more than just business—much of his personal wealth is tied up in the firm. He owns 6 percent of the company, a far bigger stake than CEOs at the largest Wall Street houses have in their companies. Also, Handler hasn’t had an employment contract in the 21 years he’s worked at the New York-based investment bank, meaning there’s no golden parachute for him if the firm goes under. “He’s being a good CEO in staying in front of the story,” says Tim White, a managing partner at Dallas-based executive search firm Kaye/Bassman International. “When CEOs own a big piece of a company, then they’re going to act in the interest of shareholders more stridently than they might if they didn’t.”
As Jefferies has come under pressure from short-sellers and a credit downgrade by Egan-Jones Ratings, Handler has taken the lead in repelling what he called an assault on his company. Jefferies has issued a total of seven statements giving information about its European bond positions and has cut those holdings by about three-quarters as of Nov. 21. The CEO personally sent and revised e-mails to the news media as he sought to break the stock’s slide and convey what his six-page letter called “the reality of what is happening at Jefferies.” In the letter, he said that the company had repurchased $50 million of its bonds due in 2012 in the previous few weeks, that its balance sheet is “highly liquid,” and it had more than $2.2 billion in cash. “Handler is a quite unusual bird,” says Frank Glassner, CEO of Veritas Executive Compensation Consultants in San Francisco. “He clearly communicates a message that he’s in it for the long term and in it with shareholders as well.”
He certainly is feeling shareholders’ pain. The value of Handler’s shares has plunged by $240 million. Handler finished 2010 with almost 13.9 million shares, including restricted stock, valued at $370.1 million at yearend when Jefferies traded at $26.63, according to regulatory filings and Bloomberg data. His current stake is valued at about $130 million based on the Nov. 29 closing price of $10.75. Richard Khaleel, a Jefferies spokesman, declined to comment on Handler’s stock beyond what the company has reported in regulatory filings.
Handler’s letter impressed some investors and analysts. “As a new shareholder, I loved it,” says Jeffrey Bronchick, who manages about $320 million for Los Angeles-based Cove Street Capital. “It’s nice to see in this day and age people taking off the gloves and hitting.” Chris Kotowski, an Oppenheimer analyst, says he found the letter to be “a very convincing rebuttal.” Eight days after the letter was posted, the stock had risen more than 5 percent.
Handler’s decision to speak out contrasts with the approach often taken by CEOs of embattled companies. “What so many of these characters do in this situation is Public Relations 101—a generic blast about misinformation and libel and a lot of huffing and puffing without getting into the details,” says Eric Dezenhall, CEO of crisis management firm Dezenhall Resources. Speaking of Jefferies, he says: “The two things I find noteworthy are the assertiveness with which they’re pushing back at short-sellers, and second, the level of detail in their deconstruction of their portfolio.” The key for Jefferies now, says Davia Temin, CEO of crisis management firm Temin & Co., is to continue to be forthcoming. “They’ve gone out on a limb, they’ve got to stay the course,” she says. “They can’t say we’ve said too much and we’ve got to retrench. Then they will lose any of the credibility that they’ve actually begun to build.”