Setbacks might have sidetracked Collins Stewart’s U.S brokerage arm, but they haven’t stopped it from expanding its presence.
If anything, Collins Stewart’s U.S. office has been on a hiring spree the past six months. The effort to beef up its cash equities business has yielded the addition of 10 new trading pros over the last half year.
Company officials say the current group of 22 sales traders and six position traders in three offices–New York, Chicago and San Francisco–is positioned to overcome past bumps in the road that it now believes are behind it.
The first blow was a disastrous acquisition of CE Unterberg Towbin in July 2007–the firm’s attempt to move into traditional research-backed investment banking. "The Unterberg acquisition was an ill-timed one," according to John Abularrage, chief executive of Collins Stewart, North America. "It was at the top of the market."
In addition, the U.S. office experienced a major shakeup within its leadership more than a year ago. That’s when Shawn McLoughlin, then chief executive for North America, left the firm. He then teamed up with Joel Plasco, a former Collins Stewart executive from the U.K, to acquire the brokerage Reynders, Gray & Co. last May. They renamed it Ticonderoga Securities, which itself has been on a hiring spree.
Abularrage thinks Collins Stewart is on the right track with the beefed up trading and research talent. The firm has re-shaped its research coverage to focus on large caps, said Abularrage, who arrived to head the 13-year-old New York office in January of last year. He previously ran the firm’s London equities desk.
"We’re not an organization that is entering the U.S. lightly," Abularrage added. "We’re a publicly listed London company with more than $100 million on the balance sheet, and no debt. We’re going to be here a long time." The parent’s market cap is $285 million.
The firm now researches financials and consumer stocks, in addition to technology, media, telecom and the energy sectors. And it has strengthened its health care team.
According to Don Dillon, the U.S. office’s co-head of sales trading and trading, the U.S. business began as an overnight trading desk that used European research for U.S. accounts. It grew from there. Five years ago, the firm hired five people out of Merrill Lynch to start a trading operation in U.S. domestic stocks. Dillon and Bryan Fay, the other co-head of sales trading and trading, joined then. At Merrill, Fay had been director of sales trading; Dillon had been director of trading.
Dillon explained current strategy at Collins Stewart: "The firm was very much siloed in the past, in terms of one individual here covering one account," We need to have multiple touch points on sales trading and trading into the larger accounts, to make sure we’re leveraging everything that we’ve built here, in terms of research and the sales effort."
Traders are currently generalists, even though the number has expanded to six from two, Dillon said. Down the road, it will take a look to see if moving to sector trading makes sense.
Collins Stewart declined to offer an estimate on how much business the revamped research and trading effort would deliver. The firm is currently in a "closed period" prior to the announcement of its preliminary 2009 results, scheduled for mid-March.
The most recent financial report shows that revenue from U.S. operations for the six-month period through June, 2009, was 25 million pounds Sterling. This compares to 22.1 million pounds Sterling through the first six months of 2008–a 13 percent gain. The company’s 2009 interim report also showed the U.S. group operated at a loss of 2.8 million pounds Sterling.
Abularrage said that hedge funds make up the majority of its client base, but it is looking to bring the mix of hedge funds and long-onlys closer to even. In some instances, the U.S. desk will commit capital to facilitate client orders, but it won’t take large positions that could hurt the firm, Abularrage said. There is no prop trading desk, he added.
One New York-based hedge fund client said he has increased his trading with the firm because he did business with Abularrage when he was in London. "They’re in the bread-and-butter cash equities business," said the hedge fund manager, who declined to be identified. "And you always need people there to help you out."
Like many independent brokerages, Collins Stewart saw opportunities in late-2008 and early-2009–during the period of dislocations in the markets–to hire talent that otherwise wouldn’t have been available. And the firm uses its research to draw customers.
The U.S. group has seen growth in its number of clients, Dillon said, though he wouldn’t elaborate with numbers. It’s also benefited from "significant" upward movement on broker lists at existing clients, Dillon said.
If the firm sees any storm clouds on the horizon, it’s the return of the bulge bracket, he said. Those firms’ return to profitability means they will become the force in recruiting they were prior to September 2008.
"And that will make life more difficult for us," Dillon said. "But we feel we’ve got a pretty special thing going, and can offer a pretty good alternative."
Still, how far along a revamped Collins Stewart has come will be seen when the Interim Report is released next month, which will detail its profitability for the second half of 2009.
The following have joined Collins Stewart:
>>Kevin McGrath; Managing Director; Sales Trader, 25 years experience joins from Pacific Crest Securities
>>James Maughan; Director, Sales Trader, 10 years experience joins from Thomas Weisel Partners
>>Mark Morell; Director, Sales Trader, 27 years experience joins from Merrill Lynch
>>Keith Scherer; Sales Trader, 12 years experience joins from Pali Capital
>>Michael O’Reilly; Director, Sales Trader, 20 years experience joins from Wall Street Access
>>Patrick Diggins; Managing Director, Equity Sales, 23 years experience joins from Wall Street Access
>>Jamie Barker; Managing Director, Cash Equities Trader, 25 years experience joins from Conifer Securities
>>Kevin Daniels; Director Sales and Trading, 15 years experience joins from Tradition Financial Securities
>>James Jones; Director, Sales Trader, 17 years experience joins from Merrill Lynch
>>Christopher Beyer; Managing Director Equity Trading, 23 years experience joins from Natixis Bleichroeder
