C. Scott Fahey joined CIBC World Markets looking for a new challenge - not a new boss.
Fresh from a key role in Chase Manhattan Corp.'s rise as a junk-bond player, Mr. Fahey this month became the head trader for high-yield bonds at CIBC, under Mario Monello.
Twelve years ago, Mr. Fahey got his first junk-bond lessons at Lehman Brothers from Mr. Monello, who was busy trying to rejuvenate that firm's high-yield effort.
Along the way, the new managing director and co-chief of high-yield sales and trading for Canadian Imperial Bank of Commerce, Canada's second-largest bank, made a name for himself on the Street for what he helped accomplish at Chase.
In 1993, Mr. Fahey left Lehman to join the handful of people building the high-yield bond business for Chemical Bank, which acquired Chase and took its name in 1996.
Since then Chase has parlayed the Chemical start-up into a junk-bond operation that rubs elbows with Wall Street's largest institutions.
It is now the fourth-biggest underwriter of junk bonds in the United States, with close to 300 people originating, selling, trading, or analyzing high-yield debt. As head high-yield bond trader for the last six years, ultimately in charge of six people, he played a significant role in getting the junk-bond operation to where it is now.
From virtually no investor contacts, his team established relationships with 200 counterparties. At that stage, he decided to leave.
"The [business] had already been built," said Mr. Fahey, 37, who became managing director and head of high-yield bond trading at CIBC this month. "At a certain point, a department gets so large that the ability for anyone to have an outsized impact on it is not that great."
At CIBC he'll be working on increasing profitability, expanding the bank's market share in secondary trading, raising daily trading volumes, and ratcheting up the number of counterparties the bank has.
He plans to do this by pulling together its sales, research, and corporate finance capabilities, and creating a better market for issues the bank deals in. Mr. Fahey joins a firm that is no newcomer to junk bonds but is having trouble keeping a place among the top 10 junk-bond underwriters.
CIBC started its high-yield business in 1995, when it bought a New York boutique called the Argosy Group that was founded by three former Drexel Burnham Lambert high-yield bankers after Drexel went into bankruptcy in 1990.
The three Argosy founders have continued to run high-yield at CIBC. With the help of their new parent's balance sheet, they expanded the origination side of the business alongside sales and trading and started a $440 million merchant banking fund.
Last year CIBC was the No. 13 underwriter of high-yield bonds, lead-managing $1.4 billion in new issues, according to Thomson Financial Securities Data. While its 1999 standing was two notches better than its 15th-place ranking in 1998, its market share has continued to hover at about 1.5% and it lags other commercial banks that have also been building their high-yield business.
Deutsche Banc Alex. Brown, for instance, has a 2.5% share of the junk-bond new issues market, and Banc of America Securities led 3.1% of all deals last year.
And after December bonuses were paid out, the group lost some people, including Michael Petone, a bond salesman, and industrial analyst Sarah Croughan Thompson, both to Lehman Brothers. Dhruv Narain, a managing director in its restructuring group, left to manage a distressed debt portfolio at New York investment management firm Morgens, Waterfall, Vintiadis & Co.
Still, CIBC has had its share of successes since it bought Argosy, particularly in acquisition finance. A $32 million investment in the communications company Global Crossing in March 1997 resulted in a still unrealized windfall - and a direct financial benefit to some of the CIBC bankers managing the investment, including the Argosy founders - of roughly $5 billion after Global went public.
So far, the bank's efforts in the U.S. capital markets have been a revenue generator, with underwriting fees for debt and equity jumping 113% from 1998 to 1999.
"There's still opportunity for improvement," said William Lazarakis, an analyst at Nesbitt Burns in Toronto.
Mr. Fahey's job now will be to increase the links between sales and trading and expand its "universe of credits," or the number of high-yield bond issues the bank follows, trades, and underwrites.
He should be helped by what Mr. Monello says is an analytical approach and an ability to understand the business plans of issuers.