A management shuffle at KBW Inc. has John Duffy going back to focusing on what he and the New York firm he's run for a dozen years are best known for: advising on bank mergers.

Duffy, 62, stepped aside on Thursday as chief executive of the firm that operates as Keefe, Bruyette & Woods Inc. and will stay on in a business development role. Passing the reins to longtime deputy Thomas Michaud may prove wise for Duffy and his ailing firm, experts say.

Duffy, diagnosed with prostate cancer, won acclaim for rebuilding KBW after about half of his New York staff were killed in the 9/11 attacks. Before that, he was best known for helping put together Bank of America Corp. and Capital One Financial Corp.

Now "he'll be very active" scouting deals in the U.S. and Asia, a KBW spokesman said. KBW needs his rain-making skills: The firm just posted its first quarterly loss since late 2008, and top rival Sandler O'Neil & Partners LP may be pulling ahead in bank mergers and acquisitions.


Sandler is still staffing up ahead of an expected merger wave, hiring a 10-person restructuring team in October. KBW plans to layoff 80 workers, or 13% of its staff.

Resigning as CEO frees Duffy make sure those cuts don't cost the firm important clients. Investment banking is a clubby business. Duffy's industry ties are deep.

He helped negotiate North Fork Bancorp's sale to Capital One in 2008.

Duffy was key to North Folk's acquisition spree before that, said John Kanas, the former chairman and CEO of North Fork and the current CEO of BankUnited Inc. in Miami Lakes, Fla.

"What John was very good at was understanding what worked and what didn't work and he didn't waste a lot of time trying to craft transactions that in the end wouldn't fit together," Kanas said. "They'll need to do some rebuilding within the company as they go forward. I wouldn't bet against them."

William Bouton, a partner with the Boston law firm Hinckley, Allen & Snyder LLP, first worked with Duffy in 1985. They advised First Connecticut Bancorp in its sale to Fleet Financial, one of New England's first big cross-state bank mergers. Among the lawyers on Fleet's team: Brian Moynihan, who is now the chief executive of Fleet successor Bank of America.

Duffy plays hard but fair, Bouton said

"He's a tough negotiator. He is a very savvy and smart guy. He'll be a zealous advocate for his side of the deal," Bouton said. "But he's also someone who has got a lot of integrity, who remembers the personal things about people."

His rivals agree.

"He's a very knowledgeable, competent investment banker with a deep understanding of the capital markets as they relate to banks," says Ben Plotkin, an executive vice president at Stifel, Nicolaus & Co. and a former CEO of Ryan Beck & Co., a boutique Stifel bought in 2007. "I have great respect for what he dealt with both personally and professionally."

Sandler also had to rebuild after losing 40% of its staff in the terror attacks. In the intervening years, both firms thrived amid the toll the crisis took on larger investment banks.

But Sandler, the younger, smaller firm, is in some ways better equipped to handle the ups and downs of the small and midsize banks its franchise depends on. Sandler, founded in 1988, remains private. It raised growth capital selling a minority stake to two private-equity shops last year. Those investors expect a return in five to 10 years. KBW went public in 2006. Its investor base is not as patient, or as supportive of bulking up in a down economy.

KBW advised more transactions than Sandler O'Neill in 2010, but the total value of Sandler's deals was higher, according to SNL Financial data. Sandler trumped KBW by both deal value and volume in the first half of 2011.

Jimmy Dunne, the senior managing principal of Sandler O'Neill, first heard months ago about Duffy's plans to step down. He has a high regard for Duffy, despite their heated rivalry. Like Duffy at KBW, Dunne became the key man at Sandler after the 9/11 attacks. He describes Duffy as "a first-rate guy."

"Obviously, our two teams competed for a long time and still do," Dunne says. "I have a lot of respect for John. In some ways I'm sorry to see the change."

Dunne was reluctant to talk in depth about Duffy or implications of the changeover at the firm. "We are still real competitors," he said.

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