The Wall Street Journal-20080213-breakingviews-com - Financial Insight- Greenhill-s Thrift Pays Off- More Left for Shareholders As Firm Pinches Pennies On Employees- Other Costs
Return to: The_Wall_Street_Journal-20080213
Full Text (662 words)
Roger Altman and Bruce Wasserstein, the mergers-and-acquisitions maestros running Evercore Partners and Lazard, respectively, should pay more attention to Bob Greenhill. The former Morgan Stanley president was the first to take his eponymous advisory boutique public. That was a fine way for him and his partners to cash out, so it was hardly surprising others followed suit. But neither has been as successful as Greenhill & Co. in minting money for their shareholders.
Greenhill stock has almost quadrupled since its May 2004 debut. Lazard has jumped 53% since its debut one year later. Evercore, which reported earnings yesterday, has actually slumped 8% since going public in August 2006. Just since that time, Greenhill has rallied by a fifth.
What makes Greenhill stand out? It is more careful with its pennies. First, the mergers specialist's noncompensation expenses are an industry-low 10% of revenue. That is almost half the ratio at Lazard, as well as larger firms such as Goldman Sachs Group and Lehman Brothers Holdings. Evercore, by contrast, splashed out more than double what Greenhill did.
Greenhill doesn't go overboard paying its employees, either -- just 46% of its 2007 revenue went to cover compensation costs. Only Goldman did better. Lazard, which paid Mr. Wasserstein a $41 million bonus and granted him stock that could total at least roughly $100 million as part of a new five-year contract, had to set aside a full 10 percentage points more. Evercore's compensation costs jumped to a little more than half its revenue on a pro-forma basis because it went on a hiring spree for rainmakers last year.
Tot it up and Greenhill's total expenses accounted for just 56% of its top line, compared with almost 75% at its two peers. That leaves far more of its revenue to flow down to shareholders -- including employees it wants to retain and others it hopes to recruit. Keeping costs low might not be a fast way to domination of the advice business, but it certainly seems more lucrative in the long run.
Credit Suisse's Sun King
Louis Brandeis wrote that sunlight is the best of disinfectants. The late Supreme Court justice's idea has found fresh meaning in the world of credit, and in the approach taken by Brady Dougan, chief executive of Credit Suisse Group.
The Swiss bank let the sun shine on its balance sheet yesterday when it detailed 78 billion Swiss francs ($70.8 billion) of exposure to leveraged finance, commercial and residential mortgages, collateralized debt obligations, monoline bond insurers and structured investment vehicles. Not all of it was pretty. The sheer size spooked investors, who sent the bank's shares down nearly 4% in early trading. But after the information was scrutinized, the shares rebounded and ultimately rising 2.5%.
The gap in disclosure between Credit Suisse and its rivals is pretty wide. Few have gone much beyond some basics about their CDO and leveraged-loan exposures. Credit Suisse has volunteered additional detail on those, and spilled the beans over newer trouble spots.
Credit Suisse's transparency stands in particularly sharp contrast to one peer: Deutsche Bank. That is notable because the German bank's chief executive, Josef Ackermann, publicly invited scrutiny last year.
He not only revelled in his own bank's lack of steep subprime- mortgage-related losses but challenged rivals to show their hands. He suspected that most hadn't managed their risk as well as Deutsche had.
So his counterparts eventually had to come clean, to varying degrees, about their subprime losses.
But when Deutsche reported results last week, it didn't live up to Mr. Ackermann's rhetoric. In lieu of specifics, Deutsche Bank said little more than that its monoline risks were "hedged," its holdings of risky home loans "manageable" and that it was "comfortable" with its commercial mortgage-backed securities exposure.
Mr. Ackermann is basically retreating from his own advice, into the shadows. His reign as the self-proclaimed Sunlight King is over.
-- Antony Currie and Jeffrey Goldfarb
---
This column is by breakingviews.com, an online financial commentary site.
