You might not have heard, but Dodd-Frank regulations and their ilk have been a real bummer for big financial institutions.
By attempting to reign in their behavior, regulators have essentially given the big banks a cocktail of Ambien, quaaludes and horse tranquilizer. The large players are moving slowly and and cautiously through a foggy new reality in which everything is way more complicated, confusing and tiring. But according to DealBook, there are some smaller banks that have stayed relatively sober. By not imbibing the regulatory cocktail, the littler guys are seeing things a little more clearly and are free to experiment with other stimulants, like risk...and probably amphetamines.
In the six years since regulators forced Wall Street banks to rein in risk-taking, Jefferies has emerged with an appetite for risk and a set of relationships to rival bigger Wall Street firms. It never took federal bailout money. Now, as a subsidiary of the conglomerate Leucadia National, Jefferies is not subject to the trading restrictions and capital requirements imposed on other investment banks that did take bailout funds and became part of bank holding companies. That gives it room to make bolder moves than some of its larger peers.
Let's. Get. SMALL!!!
Jefferies is having the time of its life, you guys.
Jefferies and Leucadia scored profits on a $125 million “rescue” equity injection that helped save Knight Capital in 2012, a $300 million rescue of the online currency dealer FXCM in 2015, and a 23 percent stake to stabilize ownership of HRG, a remnant of the hedge fund Harbinger Capital. Leucadia nearly doubled its money on the three stakes, according to company reports.
That's the kind of cheddar you can score if you just aren't afraid of your own shadow. Jefferies is out there, looking to play around and see what happens.
Mike Holland, a money manager, said Leucadia was “not afraid to go there wherever there is and have a look.”
Jefferies in unafraid to a warehouse party in a weird part of town and whip out some capital. Jefferies is wild!
And like anyone with a little too much pep in their step, Jefferies has found itself in trouble from time to time...
Some of its risks have backfired, however. Leucadia, which bought Jefferies in 2012, has since booked losses from the investment bank’s exposure to energy, junk bonds and Bache, the commodity division that it bought from Prudential in 2011 and sold to Société Générale last year. Leucadia also stumbled because of its own 79 percent stake in National Beef, a meat-processing business that has been struggling.
But it goes beyond French banks and bad beef...
Jefferies is also linked to Lending Club, the peer-to-peer lender that has been in turmoil since an internal investigation revealed improprieties in the sale of loans and a separate disclosure issue, which resulted in the ouster of its chief executive in May. About $22 million in loans sold to Jefferies did not meet the investment bank’s criteria, and the company bought them back.
Like your vice-principal always said, risky behavior can lead you into bad fintech deals. But Jefferies seems undaunted and committed to flying high by flying light. The CEO is even going to literal parties with some pretty wild characters...
[CEO Richard] Handler’s Drexel relationships were on display at an 80th birthday gathering he hosted for [Carl] Icahn at a New York steakhouse in February.
On hand were Michael Milken, Drexel’s onetime junk-bond chief; Leon Black, a former top Drexel banker who is now chief executive of the private equity firm Apollo Global Management; and the former Drexel client Bennett LeBow, now chairman of the Vector Group, another staunch Jefferies client.
You crazy, Jefferies.