LaBranche Financial Services, an institutional brokerage transforming itself from an agency-only shop to a facilitation firm, has expanded its employee roster with a number of former bulge bracket traders.
The firm has brought in roughly a dozen sales and position traders from such high-powered firms as Lehman Brothers, Merrill Lynch and Bear Stearns in an attempt to become a player in high-touch trading.
The LaBranche hires reflect a change going on in the industry where traders from gold standard shops migrate to lesser known “independent firms,” which are winning an ever-increasing slice of the high touch order flow.
LaBranche’s New York desk now has 14 dedicated sales traders and four position traders, as well as two international sales traders, according to Michael O’Hare, LaBranche’s senior managing director, head of equity trading and sales.
In addition, the firm recently opened an institutional office in Boston, and intends to staff new branches in Chicago and Los Angeles, each with five sales traders. In all, LaBranche’s ultimate goal is to have 25 veteran sales traders in New York, and at least 35 overall.
“The team we’re going after [will include] people who have existing relationships, that bring the firm the trust and loyalty that they’ve acquired over the years with their accounts,” O’Hare said. “Most everyone we’ve brought in has at least 15 to 20 years of experience on Wall Street, and they bring with them an arsenal of experience and relationships.”
LaBranche, which is best known for its specialist business at the New York Stock Exchange, launched its institutional brokerage in 2002 as an agency-only shop. After Greg Cavallo, who previously ran the desk, retired in February, the firm hired longtime block trader O’Hare from JPMorgan. Since then, LaBranche has transformed itself into more of a traditional block trading firm and commits capital to facilitate trades.
The hires are a key part of the firm’s efforts to transform its institutional brokerage business into a more rounded operation that specializes in a range of high-touch services, O’Hare said. Besides now committing capital, the firm is also instituting a corporate access program, he said.
LaBranche’s expansion into the institutional brokerage space has coincided with declining profitability at its NYSE specialist unit, which has been hurt by the increase in electronic trading under Reg NMS.
LaBranche recently brought in John Kelleher from Banc of America Securities as managing director to the head its capital markets effort with the intention of providing corporate access, O’Hare said.
“One of the weapons that we have is [chairman and chief executive] Michael LaBranche’s Rolodex of contacts,” O’Hare said. “And we’re going to leverage that, with our capital market structure and our trading desk, and offer it out to the buyside.”
During the firm’s second quarter conference call, Goldman Sachs analyst Daniel Harris asked Michael LaBranche how soon the new hires could generate significant returns.
“I think it’s a matter of months, maybe somewhat less, and it’s going to depend on who’s there and what the situation is,” LaBranche responded. “The important thing is they have the technology and the capability of scaling the business.”
The firm’s brokerage subsidiary lost a reported $2.1 million during the quarter. But LaBranche attributed the losses to start-up costs. He went on to say that he expected the firm’s number will enter the black “sooner rather than later.”
As numbers go, O’Hare said that commissions have climbed significantly-on a year-over-year basis-but could not say by how much. And the institutional brokerage segment has seen order flow increase almost 100 percent, year-over-year, he added.
