The Fight Of Their Lives

B.E. financial services firms were locked in mortal combat with tough competitors and a bruising

After taking blows from a sluggish economy and volatile financial markets, Ronald E. Blaylock uses a classic boxing match to sum up the past year. The chief executive of New York-based Blaylock & Partners (No. 1 on the BE INVESTMENT BANKS list with $214.2 billion in senior/co-senior managed issues) describes it as “Ali-Frazier III: The Thrilla in Manila.” In other words, it was death-defying, brutal warfare.

While his firm’s revenues rose 15% in 2002, profits plummeted 30%. But Blaylock didn’t just stand still and take a licking: he invested in new technology and back office systems, added more space, and hired 40 additional employees to build up the firm’s sales and equity-research operations. These moves will enable Blaylock & Partners to expand coverage in new areas, such as banking and insurance, media, airlines, technology, and energy — including oil and gas exploration. With greater pressure to identify new sources of revenue, the unpredictable economy fueled Blaylock’s expansion plans. “It will allow us to have a much broader capability to service the equity institutional investor, which in turn should help boost revenues as the firm generates more fees from these clients,” he says.

As part of the strategy, the firm added an asset management team and plans to launch new equity, fixed-income, and, possibly, mutual fund products geared toward institutional clients later this year. Next up: the pursuit of asset management firms — those with $5 billion to $15 billion under management — as acquisition targets. “It’s our desire and intent to have asset management as part of our entire platform,” he says. “We like the recurring revenue side of that business.”

In today’s bearish environment, Blaylock and other CEOs of black-owned financial services entities — banks, insurance companies, investment banks, asset managers, and private equity firms — are battling some of their biggest challenges yet. Positioned against an unsteady economy, conservative cost-cutting clients, and ferocious competition, black-owned financial services firms must develop new business models to prosper or perish. “There’s probably more pressure to perform now than in previous years,” says Joe Gladue, an equity analyst and director of research at The Chapman Co. in Baltimore. “When the market was booming a few years ago, some of the shortcomings of a company could be overlooked. But the market is tougher, and the economy is weaker, [and] those shortcomings become more noticeable.”

In fact, when BE research consulted the Securities and Exchange Commission regarding its transactions, many firms had to make restatements while others were not registered. As a result, this year’s rankings of investment banks and asset managers have dropped from 20 to 15. And to better assess the leadership of investment banks, we have ranked them according to their senior-managed issues.

MORE BANKS MERGE TO GAIN MASS

The critical need to boost capital, expand margins, and offer new products and services has forced a number of banks to get hitched. Gladue says three factors have driven this consolidation trend. First, many black-owned banks have been marginally profitable underachievers. Such entities are now merger bait for higher-performing, more aggressive institutions

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