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A Q&A With KBW CEO Thomas Michaud

Keefe, Bruyette & Woods has a sophisticated business hobbled by a simple reality: If banks and their investors are losing money, then KBW has a hard time making money.

As CEO, Thomas Michaud is responsible for seeing that KBW stays in the picture even as the slow pace of bank mergers and capital offerings weighs on the bottom line of the New York investment banking boutique, which turns 50 this year.

Michaud has spent his entire 26-year career at KBW, and was head of equity sales on 9/11. The firm lost 67 employees and its headquarters that day, and Michaud was on the three-person team in charge of its rebuilding effort afterward.

Though he was just promoted from chief operating officer to CEO in October, it has been a busy nine months. Under his watch, the firm already has cut staff by 100, consolidated office space in New York, exited the asset management business and reduced its investment banking operations in Europe.

Michaud also has been hiring bankers strategically in places such as Chicago and California to head off market share grabs from rivals fighting for the handful of deals to be had.

After losing $32 million last year, KBW returned to profitability in the first quarter thanks to cost cuts and a longawaited pickup in bank mergers and acquisitions and capital markets activity. With the second quarter winding down, Michaud shared his perspective on the market environment with American Banker M&A reporter Matt Monks. An edited transcript follows.

American Banker: Last year was the slowest for bank M&A since 1980. What do you see on the horizon for the second half of 2012 and into 2013?

Thomas Michaud: Things are absolutely better, and they're better on a variety of fronts. Prices are up for banking and financial services stocks; they're outperforming the market. There's more M&A activity than there was last year. We're forecasting a pretty good size improvement year over year in terms of number of deals.

The banking industry now has had nine straight quarters of improving non-performing assets. When credit quality becomes less of a burden, usually more things happen in terms of capital raising and M&A.

However, I would say that the macro forces still are really important. [When] big things happen around the world, like concerns about the European banking industry, it does have an impact on the United States and North America, where our market shares are greatest. So that can slow things down. And unfortunately those are factors that are out of our control. [But] to the extent that the European banks need to do different things with their U.S. subsidiaries, that could be an opportunity for us.

So this year is better than last year, [but] the world still is a challenging place. And this near-zero interest rate environment is difficult for everybody.


AB: How does this compare with what KBW has contended with in previous cycles?

TM: I think that the challenges that our clients and that we face right now are probably greater than what is typical. And I think it's because there is so much change going on around the world.

However, I think that this is also an opportunity. And historically during moments of crisis we have emerged stronger and in a better position than when the crisis started.


AB: You mean "we" as an industry?

TM: As a firm. We've gone through all these challenges over at least the 25 years that I've been here and in the 50 years that the firm has been here. We've survived and we have [the] confidence and resolve that we can do it again.

By far the hardest thing I've ever done in my career was rebuilding after 9/11. The personal impact of that was extraordinary. The fact that we had to rebuild our company in terms of its facilities, in terms of its mental capacity and its emotional capacity from scratch-that was by far the hardest thing I've ever done.

In terms of a business perspective, this is one of the harder moments. But I get a lot of strength from that 9/11 moment. It goes back to [the idea] that you get stronger from some of these adverse moments.

And I say if we didn't panic and we didn't give up then, then we're clearly going to get through the next couple of years.


AB: Can you talk about what kind of impact 9/11 has on the firm today?

TM: When you think about culture, and you think about our 50th anniversary and you think about what makes our firm so special, you have to consider 9/11, because I think what we achieved is remarkable given so many of the emotions and challenges of the period. It has really brought us together as a firm.




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