"On average every three or four years the world turns upside down, but I've learned that difficult times are the best for investing and hiring people," explains Rich Handler, CEO of the global investment bank Jefferies, on a visit to Italy to meet client companies and the team led by Andrea Donzelli, Mauro Premazzi and Alessandro Delia Russell. In the office in the center of Milan, the manager shells out the crises experienced in his thirty-year career as an investment banker that made him one of Wall Street's longest-serving CEOs. «When I graduated, the stock market crashed, then in 1990 the company I worked for went bankrupt, in 1994 interest rates soared, in 1998 there was the collapse of Russia, in 2000 the Internet bubble burst, in 2001 the Twin Towers, in 2008 the Lehman crash, in 2011 tensions over sovereign debt, in 2019 the pandemic, in 2022 the war in Ukraine», he lists. "I've been through much more difficult times than this."
Investment banking is not having a good moment: stock market prices are at a standstill, acquisitions are down by 44%, the debt market is frozen. Many banks are making sharp headcount cuts, even in the front lines. You?
“We come off two years of free money and monumental fiscal stimulus that has pushed equity markets. It wasn't sustainable in the long term and sooner or later a slowdown was a given. Our approach envisages avoiding useless or aggressive initiatives in positive periods in order to rationally face negative situations, such as the one we are experiencing this year. Despite the obvious difficulties of investment banking, we are already seeing the first signs of recovery and we want to be ready when they are ripe. With this in mind, we are also adopting an expansive recruitment policy, also seizing the opportunities offered by what is happening in some European banks".
Are you referring to the UBS bailout of Credit Suisse?
«European investment banking is going through a transition phase: without a strong presence in the United States, the first market in the world, it is difficult to solve the investment banking puzzle. We are ready to take advantage of this to attract the best talent that, under normal circumstances, it is difficult to take away from the competition. This investment does not ensure an immediate return, so large banks with diversified credit businesses tend to overlook it. Instead, we are focused on investment banking and are fortunate to have long-term-looking shareholders and managers. Otherwise, Jefferies could not have grown from $144 million to over $5.5 billion in revenue in 30 years. In this, our mentality is very similar to that of the Italian companies we want to support».
Other major international banks have recently shown interest in the Italian market. What motivates such confidence?
«In Italy there is an excellent pool of talent, a context favorable to business thanks to the initiatives undertaken by the country in recent years. In general, a feeling of political stability prevails among international investors that allows them to focus only on corporate fundamentals. I have met phenomenal ones in your country, also in the technological sector, ready to open up to the capital market".
However, if compared to the GDP and to other countries, the Italian capital market is small. Is there room to grow for an investment bank?
“When I started working, the US stock market was very small, private equity still in its infancy. We have intercepted them in these initial stages and have been able to grow with them, accompanying companies in the raising of capital and investments. I see the same opportunity with Italian companies with whom we want to create a lasting relationship, satisfying their daily needs now that they are medium-small and one day when they will be large. For this reason we have recently strengthened the Milan and Rome offices and the Italian business, led by Andrea Donzelli (Vice Chairman Investment Banking and Country Head Italy), Mauro Premazzi (Head Investment Banking Italy) and Alessandro Delia Russell (Equities Sales)».
Do you think you can overcome the traditional reluctance of family groups to share control with outside investors?
«Family businesses are perfect for us: we share their entrepreneurial mentality and aptitude for making every decision "putting our face". We have already assisted several of them, such as Recordati in the sale to CVC and Stevanato in the listing in New York, sometimes helping them to define the succession structures. Now, however, we also want to focus on large international groups and institutions that have a great desire to invest and raise capital».
Thehowever, the capital market is still blocked. When will it be accessible again?
“The situation is stabilizing because central banks appear to be close to peak rate hikes. At that point it will be possible to go back to putting a price on risk and IPOs, debt, acquisitions and venture capital will return. When will it happen? On January 12, 2024 (laughs, ed). No one can know for sure, but it's not as crucial as those new to the business think. Before 2022, the last time the Federal Reserve raised the cost of money that fast was 1994. At the time, there were four of us in Jefferies, today we are 5,500. It was then that I decided to write a "Boomer's guide on how to deal with rising rates": in summary, it is not important to guess exactly where the Fed will stop, but to understand when it is close to the peak. The problem is not the final entity of the rates, but the uncertainty that hovers over the duration of the upward path. Now we are close to unraveling it ».
However, geopolitics is also a source of uncertainty. For example, companies have doubts about investing in China due to the tension with Taiwan, but at the same time they cannot do without the country which is still the factory of the world. How to get out?
«It is a recurring theme in discussions with our customers. However, companies must focus on what they can influence with their initiatives and not on what is beyond their control, making themselves find themselves in the best economic and financial conditions just in case. In general, it is good that the US and China maintain channels of communication because silence is the most worrying thing. I hope we will continue to be competitors without ever turning into adversaries».
How has investment banking changed in your 30 years in the profession? And what will still change?
«Everything changes and constantly: electronics, technology, the capital market, industry and even geography. Every change affects us and forces us to change plans: what doesn't change are the importance of people, the centrality of the relationship with customers and the protection of the foundations of our group on which we can build for the long term».
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The Economy Opinions and the Economy 6 pm
Jul 23, 2023
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