Prudential Securities took a flurry of body blows last week in both its equity and debt businesses as both the president and research chief of Prudential Volpe Technology Group resigned, as did the heart of Pru's asset-backed securities team, which defected to Credit Suisse First Boston.
James Feuille, president of Prudential Volpe Technology Group (PVTG), quit on Monday, citing the refusal of Prudential Securities - which acquired technology banking boutique Volpe Brown Whelan for about $180 million in December - to give the San Francisco-based unit the operational autonomy he thought it needed. In New York, meanwhile, ABS group heads Joe Donovan and Greg Richter jumped ship to CSFB, prompting Pru to file a lawsuit to prevent its rival from snatching any more of its ABS talent.
"You never like to lose good people, and these were good people," said PVTG Chairman Tom Volpe of Feuille and Peter Rogers, the research head who also quit. "But the business has moved beyond individuals. In these markets, if Mary Meeker bolted Morgan Stanley tomorrow, Mother Morgan would go on."
The loss of Feuille sparked a reorganization at Pru, in which the firm's media and telecommunications investment-banking group was merged with the technology banking effort at PVTG. Mark Leavitt, Pru's former media/telecom head, will assume the role of group head of PVTG, according to Volpe. PVTG also plans to hire a new head of West Coast technology, a position that will report to Leavitt.
"We've been talking for some time about merging media/telecom into PVTG," Volpe said. "Did it happen more quickly than we anticipated? Yes."
Volpe refused to comment on statements in the press from Feuille about the outgoing president's unmet demands for more independence in running Prudential Volpe, but did say that the understanding that his firm has with Prudential "from day one has been totally consistent."
In addition to the merger of media/telecom and tech, Pru also named Richard Schoninger, formerly head of the firm's Real Estate Group, senior managing director and head of investment banking. He will serve alongside Ted Berghorst, managing director and head of Prudential Vector Healthcare, and Tom Volpe, chairman of PVTG. All three will report to Vincent Pica II, president of Prudential's capital finance group.
Fighting Back in ABS
The resignation of Feuille was a setback to Pru's investment banking business strategy of focusing on key areas like technology, telecom, healthcare and real estate. But last week's loss of ABS talent might prove just as damaging a blow to a struggling fixed-income unit that recently shuttered its high-yield operation.
Pru Securities, a division of Prudential Insurance Co. of America, did not passively accept the loss of most of its ABS franchise, but instead filed a lawsuit against CSFB last Tuesday. "We have obtained an injunction against CS First Boston, preventing them from hiring anyone else from Prudential Securities," said Susan Atran, a spokesperson for Prudential, adding that some of the 10 officials that went over to CSFB had non-solicitation clauses in their contracts that she claimed they have violated.
"We believe the claims have no merit. We will respect the restraining order until such time as it's modified; however we're hoping for a quick resolution," a CSFB spokesperson responded.
The injunction only prohibits CSFB from nabbing any more officials from the Pru group, mainly at the vice president level. The heavy guns, including Donovan, Richter and managing directors Michael Baker and Wayne Olsen, were already at work at CSFB as of last week. Sources familiar with the company said CSFB would have been in a bind had the order affected the hires of these officials, but now it has the luxury of waiting until the legal fireworks are over, and then resume cherry-picking Pru talent.
With Donovan and Richter gone for good, sources said it would be hard for Prudential, with its limited pocketbook, to simply go out and poach another shop's ABS franchise - the strategy followed recently by Deutsche Banc Alex. Brown, which raided CSFB's larder of ABS talent, and now by CSFB itself. Rather, some former Prudential pros said the shop will remain as it has been for several years: a boutique business in an era of mega-businesses.
To some, that looks to be a dead end. One official who was courted by Pru in 1998 before taking another job said he had ended the negotiations after a visit to the shop's Water Street headquarters. "Everyone seemed to be standing around waiting for either Pru Insurance to sell them or for someone to buy Pru," he said.
But another ABS analyst familiar with the company said that Pru has a strong enough presence in home equity loans - still the ABS market's largest asset class - and has enough of a reputation among mortgage issuers that it could entice a few top names to the helm of its ABS group.
While Pru officials indicated that they could be looking to promote an ABS head from within the group, Street analysts said that building a homegrown franchise is becoming a very difficult proposition. "It's very expensive to build from the ground up and in this era of instant gratification, no firm is willing to let its capital be under-productive," said one researcher.
Asset-backed securities are the one capital markets sector in recent years in which Prudential could be considered a key player. Last year, the shop ranked sixth in the ABS league tables run by Thomson Financial Securities Data, posting $14.0 billion in proceeds managed and achieving a 5.4% market share.
By contrast, in most other debt categories the firm was barely on the page in 1999, ranking 13th in mortgage-backed securities (and there mainly on the strength of its still-solid commercial mortgage business), and barely cracking the top 20 in terms of high-grade corporate debt underwriting.
Its even more anemic performance in high-yield, where it lead-managed only 12 deals totaling $124 million last year, spurred the shop to kill its junk department last month and sparked questions about how committed the shop will be over the long haul to fixed income as a whole. But Prudential's Atran denied that the shop would consider bowing out of ABS, adding that it is looking to fully re-staff its securitization business as soon as it can.
ABS players said that Prudential's strength had been in home-equity loans, with which it was synonymous in the last decade, as well as its solid commercial mortgage presence. "They have survived by maintaining existing relationships," one source said. "The growth has mostly come on the CMBS side, and was driven in part by joint ventures with some other issuers."
Prudential's traders also get high marks for keeping the firm in the ABS/MBS secondary market. "They have a real knack for finding market bottoms," one trader said. "And by selling cheaply they may have endeared themselves to their customers."
But both Richter and Donovan said that they were excited to be leaving Pru for the top-ranked ABS house on Wall Street. "It wasn't a hard decision to come back to such a successful firm, and in particular such a successful asset finance platform," said Donovan, who worked at CSFB from 1983 to 1995. "It's arguably the only consistent player in the market from the beginning of this market in 1984."
"It's a great opportunity as we have a much broader platform now," added Richter.
Donovan and Richter were also willing to accept, and even excited about being part of a tightly integrated structured finance business at their new firm, whereas their predecessors - former CSFB top guns Jorge Calderon and Phil Weingord - chafed under that structure, fleeing to Deutsche, which promised them autonomy. Prudential's ABS business, by contrast, is considered a stand-alone enterprise that has few direct ties with the overall direction of Pru Securities, sources familiar with the company said.
Other Pru veterans now working at Credit Suisse are directors Russell Burns, Jonathan Clark, Scott Corman, Brendan Keane and Andrew Yuder, all working in CSFB's Client Coverage group. Christopher Riccardi joined as a director in the structuring group, focusing on CBOs.