Cowen Group, in a change of strategy, is staffing up on the trading side of its business without an accompanying build-up on the banking side.
Executives at the mid-sized investment bank told analysts Wednesday it was hiring a trader to cover the financials sector and was looking to do the same in two or three other sectors. The firm is not planning a full-fledged build-out of an investment banking practice in those sectors however.
“We are seeing a steady stream of talented people who in past years we would not have expected to be able to hire, much less afford,” Greg Malcolm, Cowen’s president and chief executive officer, said.
Malcolm told analysts the firm was hiring a “senior financials trader who’ll start in a few weeks.” The trader would be bringing 20 new accounts to Cowen, generating “significant incremental revenue” to the firm in 2009.
A Cowen executive, when asked by Traders Magazine, would not divulge the name of the pending hire.
Malcolm added: “As we try to find more opportunities like financials, and we are looking at two or three verticals in the same way, we think we can add incremental revenue to what is already a relatively outperforming business.”
The brokerage side of Cowen’s business–mostly cash equities–performed better than the banking side in 2008. Sales and trading grossed about $156 million, an increase of about 2 percent. Banking declined by 43 percent to $51 million.
Cowen’s hiring strategy is unusual for the bank because it does not involve adding any bankers or research analysts in the effected sectors. Typically, if entering a new sector, Cowen would hire bankers first; then analysts; then sales people and traders. Malcolm explained that is a very expensive and risky proposition.
“We are interested in looking at things right now in reverse,” Malcolm said. If the initiative is successful, Cowen may then staff up in research; then possibly in banking, the exec explained.
The ability to attract high quality traders let go from the bulge bracket shops is a common refrain these days by executives from mid-sized and smaller firms.
One analyst who covers investment banks credits Cowen’s decision to two factors. “They have been gaining market share,” he said. “So they are trying to take advantage of their momentum. Plus we’re in an environment where it is easy to find good people.” The analyst uses Thomson AutEx data to determine market share.
Cowen operates in five sectors, but is perhaps best known for its work in the healthcare sector. It trades some financial stocks, but not many.
The pending hire comes as the firm has started to build an electronic trading group. In December, Cowen hired Stuart Gould from Morgan Stanley to lead that effort, which Cowen expects will generate 50 new accounts. The firm also plans to add new staffers to this group in the next few weeks.
All in all, Cowen covers about 1,000 accounts, according to its website.
Brokerage has been the bright spot at Cowen during the past two years as its primary investment banking business has shrunk considerably.
Brokerage accounted for 69 percent of Cowen’s revenues last year while banking accounted for only 25 percent. In 2006, their contributions were roughly equal. The change is due to a drop of two-thirds in Cowen’s investment banking business, largely because of the collapse of the new issuance market.
During the fourth quarter of 2008, for example, only one IPO was completed in the U.S., ending a year with the lowest level of IPOs since the 1970s.
Cowen is not the only mid-tier bank to witness a reversal of fortunes. Thomas Weisel Partners Group and Piper Jaffray & Co. also report drop-offs in their investment banking businesses, giving their sales and trading operations a more prominent role.
