James J. McDermott Jr. resigned Thursday as chairman and chief executive officer of Keefe, Bruyette & Woods Inc. amid rumors that his tenure was jeopardized by Keefe's unexpected decision to cancel an initial public offering.

Joseph J. Berry, 53, and John G. Duffy, 50, were named co-chief executive officers.

In a press release, Keefe Bruyette said that Mr. McDermott was leaving to "pursue personal interests after 21 years with the firm."

"We're extremely grateful for all that Jim's contributed to the firm's success, and we wish him well as he pursues his personal interest," Mr. Berry said in the press release.

The news was announced to Keefe Bruyette employees at a Thursday morning staff meeting, sources close to the firm said.

Many outside the firm believe that the 47-year-old Mr. McDermott's departure is related to the company's canceled IPO.

"The initial public offering being pulled so quickly implies that there is more to this story that we have not heard," said Scott Edgar, research director for Sife Trust Fund."

Initial public offerings just don't get canceled."

Keefe Bruyette, a 37-year-old boutique securities firm that specializes in financial institutions, canceled the IPO for the second time on May 10 with little explanation.

The cancellation came just six days after a tremendously successful offering by Goldman, Sachs & Co.

On Oct. 6, the company announced that it would delay its IPO because the market at the time was murky.

KBW Inc., the parent company, had planned to sell 4.7 million shares on May 11-a 28% stake-at $17 to $19 each to raise about $85 million.

Many employees stood to gain considerably-particularly Mr. McDermott- from the move.

According to an April 16 filing, Mr. McDermott owned 1,022,105 shares, or 7.01% of the company. Charles H. Lott, 69, chairman of KBW Asset Management, chief operating officer, and class III officer, owned 3,254,171 shares or 22.33%; Stanley T. Wells, vice chairman, owned 1,576,033 shares, or 10.82%; Mr. Berry, president and chief operating officer, owned 1,293,045, or 8.87%; and Mr. Duffy, executive vice president, owned 687,755, or 4.72% of the company.

Cancellation of the offering in May ignited rumors-mostly that top executives at Keefe Bruyette were planning to put the company up for sale.

That speculation gave way to talk that Mr. McDermott had already left the company.

"We are not going to comment on rumors," said Mr. Duffy. "People let their imaginations run wild."

Mr. Duffy added that Keefe Bruyette "would not rule out an IPO in the future" but wanted to focus first on expanding the company's research department in insurance, brokerages, and other financial institutions.

Keefe Bruyette recently opened new offices in Chicago and Boston.

Mr. McDermott could not be reached Thursday to discuss his resignation.

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