Getting ready for a corporate shake-up

Cantor Fitzgerald has been considering a stockbroking acquisition here since 2010 and now, having bought Dolmen Securities, the US firm has ambitious plans to jump start the corporate bond market in Ireland, writes Kyran Fitzgerald

THE shake-up of Irish stockbroking continues apace with the acquisition of Dolmen Securities by the New York-based Cantor Fitzgerald, a firm that will forever be associated in peoples’ minds with 9/11.

Some 658 employees of the firm perished in the terrorist attacks that destroyed the twin towers at the World Trade Center.

CEO Howard Lutnick lost his brother and a second key associate that day. He led the recovery at the firm and remains in charge.

A sometimes controversial figure, Mr Lutnick has won much respect by pulling together almost $200m (€155m) in funding for the families of those who died.

The group restructured, shifting its head office to mid-town Manhattan, while expanding its London office. It also closed its offices in France and Germany.

Cantor Fitzgerald has ambitious plans for Dolmen, a firm based in St Stephens Green, with offices in Cork, which was founded in 1995.

The group has indicated its intent to jump start the corporate bond market in Ireland — such a move could have a significance well beyond the relatively narrow world of stockbroking as Cantor Fitzgerald has a strong client base among medium-sized companies.

Many believe that the development of alternative sources of non-bank funding for Irish firms is a prerequisite for any sustained enterprise-led recovery in this country.

Dolmen’s founding CEO, Ronan Reid, will continue in his post at the renamed firm which reportedly fetched about €11m.

The price fetched is modest by the stellar standards of the boom years. Among the beneficiaries is property developer, Garret Kelleher, the man behind the aborted Chicago Spire.

Mr Reid and his fellow shareholders will, no doubt, be relieved to have received a financial injection, albeit one involving loss of control over the firm.

Cantor Fitzgerald has been considering an Irish stockbroking acquisition since 2010. At one stage, Davy Stockbrokers was said to be a target. It has been in negotiations with Dolmen for over a year. The acquisition is the latest in a series of ownership changes among Irish stockbrokers, triggered by the financial downturn.

AIB sold Goodbody Stockbrokers to Killorglin based, Fexco, while NCB was acquired, this summer, by the South African financial services group, Investec in a deal said to be worth just over €32m. ABN Amro pulled out of Ireland.

In 2006, the senior partners at Davy bought out Bank of Ireland’s 90% plus controlling stake in the firm for €317m. It proved a less than timely purchase.

However, in July, Davy confirmed a €25m dividend payout to key employees, the first since 2006. With net assets of €131m at the end of 2011, Davy looks set to remain the largest player in the field for the foreseeable future, helped by an expanded market in government paper and renewed overseas interest in Ireland.

Cantor Fitzgerald has, nevertheless, been quick to set out its stall, vowing to “become the number one fixed income dealer in Ireland in a relatively short period of time”, with at least 200 people being added to the payroll within a year. The firm also plans to repackage troubled loans into securities, taking them off the banks’ books. The group has indicated plans to make further acquisitions.

Cantor Fitzgerald is expanding as part of a trend for brokerages to fill the gap left behind by a shrinking bank sector. The group was originally founded in 1945 by Bernie Cantor and Irishman, John Fitzgerald, an insurance executive.

Bernie soon assumed prime position in the firm.

It was rumoured, falsely, that Cantor had invented an Irish connection so as to assist the firm in breaking into an Irish dominated bond trading business.

Cantor Fitzgerald started offering investment advice to Hollywood stars such as Zsa Zsa Gabor, and Kirk Douglas. But the firm’s real breakthrough was as a trader in Government bonds.

Mr Lutnick grew up on Long Island. His parents died while he was still a student. He got a job with Cantor Fitzgerald where he found a father figure in Bernie. At the age of 29, in 1990, he was chief operating officer and heir apparent. Bernie’s health began to fail. His wife sought to exert greater control over the firm.

Mr Lutnick fought back and the parties faced each other in a Delaware court. A settlement was reached, but there was much bad blood.

By 2001, however, Cantor Fitzgerald was thriving, having grown to become one of America’s largest government bond brokers, with blue chip customers spread across the sunny uplands of finance.

A booming stock market had driven estimates of Mr Lutnick’s personal wealth to $300m and beyond. Today, Forbes estimates his fortune at about $45m. He is said to draw a $6m income from his position as chairman/ CEO at the group.

On 9/11, Cantor Fitzgerald would emerge as the greatest of all victims, with a death toll far exceeding that of even the New York emergency services. Ironically, Bernie had moved the firm’s HQ into the top floors on the World Trade Center because he got a very favourable 25 -year lease as other firms were reluctant to take space so high up.

Mr Lutnick attended hundreds of funerals in the wake of the attacks. Almost immediately, he attracted controversy when pay cheques were stopped. Within weeks, however, a trust fund was put in place. Over $180m was disbursed within six years. Mr Lutnick had been true to his word. At the same time, competitors swooped on the firm’s clients, this being as ever a dog eat dog world.

The CEO went around giving pep talks to staff, many of whom were faced with daily reminders of lost colleagues. Some work teams were almost completely wiped out.

THE survival of Cantor Fitzgerald owes much to Mr Lutnick’s dogged resilience. Cantor Fitzgerald has moved into investment banking from its traditional institutional brokerage hunting ground.

The group has over 5,000 institutional clients and its sister company, BGC Partners is a leading global intermediary in the wholesale financial markets.

The group has moved into some of the mid-market space vacated in 2008 by Lehman Brothers and Bear Stearns.

It has also been expanding its real estate and mortgage business.

Cantor Commercial Real Estate was recently launched with lending capacity of $5bn.

However, Cantor Fitzgerald is out of favour with the ratings agencies, Moodys and Standard & Poors. Market sources insist that the ratings agency downgrade should not cast to great a cloud on the Dublin expansion plan.

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