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An OTC past Founded in the 1962 in the West (Los Angeles, actually) by former cowboy Boyd Jefferies, fast-growing investment bank Jefferies & Co. has always had something of a wild reputation. The firm made its mark in the 1960s and 70s as a trader of over-the-counter (also called "third market" stocks) - managing trades outside the normal exchanges (like the NYSE). The firm became popular among corporate raiders like T. Boone Pickens and Ivan Boesky, who could accumulate large piles of stock for hostile takeovers, without the scrutiny from the SEC they would have faced had they bought the stock on an exchange. However, after the stock market crash of 1987, some of Jefferies' dealings were found to have violated SEC regulations; Boyd Jefferies was banned from trading and resigned. On edge Led by current CEO Frank Baxter, the firm continues to thrive on cutting-edge financial businesses. In recent years, the firm's junk bond underwriting business has exploded. In 1990, Baxter hired 60 bankers from Mike Milken's collapsed junk bond shop, Drexel Burnham Lambert; from 1992 to 1997 the firm underwrote $17.1 billion in junk bond offerings, including the largest high-yield offering managed by a single firm in the 1990s (a $1.6 billion financing of TransAmerican Corp in 1997). Junk bond offerings underwritten by Jefferies also have among the lowest default rates in the industry. Although the firm's equity block trading business is still its major moneymaker, recent years have seen its capital raising business become more successful. Overall, Jefferies' corporate finance revenues jumped 134 percent in 1997 to $229 million. The firm's investment banking businesses, which aside from underwriting also includes M&A and restructuring work, targets small to midsize companies. Changing structure Jefferies & Co. is actually part of a holding company called Jefferies Group. Until 1999, Jefferies Group was a holding company that also controlled computer-automated stock trading company Investment Technology Group. In the spring of 1998, as its profits soared, the company announced that it would spin off both Jefferies & Co. and Investment Technology Group (in separate offerings) in a complex transaction designed to allow Jefferies & Co. to develop as a firm focused solely on investment banking. In 1999, the firm completed its spin-offs. All subsidiaries of the former Jefferies Group were spun off to create "New JEF" (trading on the New York Stock Exchange under the familiar JEF ticker). ITG was spun off as well, and immediately merged with the old Jefferies Group. The combined entity was renamed Investment Technology Group. Gyrating fortunes Largely because weakening market conditions worldwide, the firm's corporate finance revenues plummeted in 1998, down to a meager $13.5 million in the third quarter of that year. Although the Jefferies Group's overall earnings have remained healthy thanks to trading commissions and revenue from ITG, some observers have expressed concern over the falling I-banking revenues. For 1998, the Jefferies Group (the "old JEF," the holding company that controlled ITG) reported record revenues and earnings.
Jefferies & Co. recruits at select college and business school campuses, especially on the West Coast, owing to the firm's L.A. headquarters. Says one insider about the firm's interviews: "I would classify it as typical banking. You get some technical questions-it depends on the interviewer. Some are real lax, others are real intense." Unlike some firms which like to employ two-on-one interviews, however, "all we do pretty much is one-on-ones," reports an insider. Although in the past, Jefferies has recruited primarily for full-time, rather than summer positions, the firm is developing a more structured summer associate hiring process. "They're definitely moving that way, because they've grown so much," reports one insider. Those who have a banking or finance background have perhaps more of an edge over other applicants than they would at other firms, insiders say. "By and large, Jefferies likes to hire people who've been in banking before, because they don't have a large training program that the bulge-bracket firms have," reports one contact. That source describes the firm's analyst training program: "It's helpful, but it's only a week. It's modeling, Excel, just kind of walking you through the basics."
Those Drexel guys are everywhere One insider at Jefferies explains the firm's recent history: "It's traditionally a high-yield firm. When Drexel blew up, basically half of them went to DLJ, half went to start Jefferies Corporate Finance. Over the last four years, we've moved into basically every product group." That contact says the notorious aggression of Mike Milken's bankers at Drexel has been preserved at Jefferies. "I would say it's very aggressive, very hardworking. There's some competition amongst bankers." Flying Free What does this "aggressive" atmosphere mean for bankers looking at Jefferies" "It's one of the few places where you can have a completely general experience. You're not pushed into a product group right away. Although they have those groups, you're free to move on your own," reports one insider. "Maybe there's a lack of controls, but that's just the tradeoff. You've got to be aggressive. If you're looking for structure, you're not going to be happy." "Because there's the lack of controls, it's a real relaxed expense policy. You can travel business class everywhere [and] pretty much stay at whatever hotel you want," adds that insider. Another points out that these travel perks aren't to be sneezed at. Because Jefferies is a small firm, "analysts and associates are going to drafting meetings, not just doing spreadsheets." One insider discusses the responsibility afforded at a smaller firm: "You definitely have much more responsibility. As a second-year analyst, you're pretty much playing associate roles. It's not as structured. There's a lot of deal teams without an associate or VP, just an analyst going to work with a managing director." Above-market pay "I think they pay above market," says one insider. "Definitely in the bonus, the base is on par with Wall Street. The analyst base might be a little above Wall Street. When you're a smaller firm, sometimes that's the only way you can differentiate yourself." Also, the firm reportedly has an outstanding 401(k) program. "The matching's pretty attractive," reports one insider. "It's based on Jefferies profitability, so it can be over 100 percent." How hard do the bankers work for the money? "It's right on par with most Wall Street firms. Analysts are at about 80 to 85 per week, associates maybe 70." Work may be less painful, though, our contacts say. "It's a more casual atmosphere, more of a West Coast feel, without a doubt," says one insider. "There's more personality." As an example of the firm's laid-back 'tude, consider that Jefferies & Co. bankers - firmwide - have recently been able to dress casually all summer.
Mel Locke
Investment Banking;Equity Trading;Equity Research;High Yield Trading Research; Technology-based Trading
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