Bennett Goodman plans to stay on top by doing what he says his firm has always done: something different.
As the head of high-yield for Donaldson, Lufkin & Jenrette, Mr. Goodman must defend the firm's longtime position as the leading junk bond underwriter. That is no easy task, considering that new competitors are entering the market almost every day.
"Doing the same old things year in and year out doesn't work in such a competitive business," Mr. Goodman says. "It's very important to reinvent yourself."
Mr. Goodman, 41, joined Donaldson Lufkin from Drexel Burnham Lambert in 1988, where he had spent four years working with leveraged buyout firms. He was named head of capital markets in 1995 and took the reins of the junk bond business in 1996, when Garrett Moran stepped into the vice chairman's role.
As the bull market for junk bonds matures, Mr. Goodman is leading the effort to keep Donaldson Lufkin on top in a junk market that has become much more competitive. Low interest rates and strong investor demand have drawn corporations to high-yield debt in droves, and commercial banks and Wall Street firms have followed.
But Mr. Goodman says he is not worried. He says he plans to use Donaldson Lufkin's "cumulative transaction experience" to innovate and remain strong.
"It would be hard for us to sustain 20% market share, and we're pretty realistic about that," Mr. Goodman says.
"But we're going to be vicious competitors. We're not going to relinquish our title very easily. We have a lot of wherewithal to slug it out."
To that end, Mr. Bennett is building a junk bond shop in London to help Donaldson Lufkin prepare for growing demand in Europe. He is also trying to more tightly integrate the firm's high-yield effort with its mergers and acquisitions and leveraged lending businesses.
Critics contend that Donaldson Lufkin is "not as hungry" as in the past, and that the relatively small firm will not be able to compete with the behemoths that have merged themselves into global corporate finance powerhouses.
"DLJ's advantage was that they could marry high-yield and equity, and now a lot of people can do that," said one investment banking competitor. "Now competition is fierce around the globe, and everyone is using every angle they can to get into this."
Morgan Stanley, Dean Witter & Co. beat out Donaldson Lufkin as the top junk underwriter in the first quarter, scooping up 14.6% of the market, compared with Donaldson Lufkin's 13.3%.
Overall, the market saw roughly $124 billion in new issues in 1997 and over $40 billion in the first quarter of 1998, according to Securities Data Co.
Mr. Goodman said he would like to keep Donaldson Lufkin's share of the high-yield market in the 14% range. To do that, "we ask ourselves not what's been done before, but what can be done in the future - and that's a huge difference," Mr. Goodman said.
"We like pushing the edge, going where people haven't gone before. By doing that you are creating value for people."
That philosophy is deeply entrenched in Donaldson Lufkin's history. The firm built its junk bond enterprise in the wake of the market's collapse. When Drexel fell in 1990, Donaldson Lufkin grabbed its talent and charged into a business from which every other Wall Street firm was retreating.
"DLJ certainly was very aggressive," said Kingman Penniman, president of KDP Investment Advisors, Montpelier, Vt. "In the depth of the high-yield debacle, they had the foresight to recognize that this was a good place to be.
"When the market developed, they had the relationships and the contacts, and they were in place to take advantage of it."
By the time the junk bond market began to rebound in 1993, Donaldson Lufkin had emerged as the top underwriter. The firm has garnered roughly 18% market share each year since then.
Mr. Goodman is focusing on building a "microcosm" of the U.S. leveraged finance effort in London. Donaldson Lufkin has about 50 investment banking professionals in the United Kingdom, and Mr. Goodman plans to build that to about 150 by the end of the year.
While other banks and investment banks have used their existing high- grade distribution staffs to sell junk bonds in London, Donaldson Lufkin was the first to put dedicated high-yield sales and trading professionals there. The firm has 15 high-yield sales and trading professionals there, and plans to have 25 by yearend.
Donaldson Lufkin concedes that its arrival in London is a bit late. But Mr. Goodman says he sees that as an opportunity to learn from his predecessors' mistakes and to hire top-notch talent.
"Some firms built up huge infrastructures and businesses that never evolved in the way that we thought they would," he said. "That's had a huge impact on morale and compensation, and a lot of firms are going through a lot of pain."
Closer to home, Mr. Goodman must contend with a high-yield market that some say has reached its peak. He admits that the good times cannot last forever.
"We believe that we're toward the end of a very strong economic cycle, as interest rates have come down, and business conditions have never been better," Mr. Goodman said. "For most of corporate America, that's got to change over the next two to three years."
But Mr. Goodman predicts that his firm will endure the downticks as "the normal ebb and flow" of the high-yield business, and he says he is looking forward to it.
"One of the great hallmarks of this firm is that it looks at chaos as an opportunity," Mr. Goodman said. "Anybody can throw capital around, but we're going to use it judiciously to figure out ways to create value for our issuers as well as our investors."
"You can't just be a 'me-too' player in a bull market, just because anyone can sell a deal," Mr. Goodman says. "We like to measure our business during the downticks. When the market hiccups and everybody else is headed for the exits is exactly when you're supposed to stand up and make a bigger investment."
