October 15, 2010
The Giant Slayers
It was a collapse of epic proportions. The financial crisis in 2008 created an atmosphere of panic and fear not only on Wall Street but throughout the world as the bursting of a global housing bubble left financial institutions without liquidity. The Lehman Bros. bankruptcy heralded unprecedented failures for American and European banks despite governmental bailout efforts. Markets worldwide plummeted in the worst financial catastrophe since the Great Depression.
This environment led James Reynolds Jr. and his team to put on their strategic thinking caps. The chairman and CEO of Chicago-based Loop Capital Markets L.L.C. (No. 1 in taxable securities with $2.248 billion in lead issues and No. 2 in tax-exempt securities with $4.961 billion in lead issues on the BE investment banks list) saw an opportunity as large, global investment banks–which were involved in the subprime market–downsized, merged, or went bankrupt, leaving scores of talented banking professionals jobless or disenchanted. “The collapse of behemoths Bear Stearns and Lehman Brothers, in addition to the acquisition of Merrill Lynch by Bank of America, presented a unique opportunity for Loop Capital Markets to expand,â€ recalls Reynolds.
All told, Loop Capital hired more than 25 people from large Wall Street companies that downsized their bond departments and global equity divisions. The larger staff enabled Loop Capital to service not just the largest institutional bond and equity investors but second- and third-tier institutions often overlooked by big Wall Street firms.
Loop Capital was not involved in the subprime market, in which financial institutions created highly leveraged mortgage-backed securities. While large, global firms were jumping into this once lucrative market, Reynolds and company focused on one of their core businesses: municipal bond underwriting. Although such bonds are not as profitable as some of the more creative securities that trade globally, they helped spare the boutique firm from the bloodbath that ensued when the housing market plummeted and banks found themselves unable to meet their capital requirements.
As a result, Reynolds and his team were the calm within the financial storm, pressing the advantage by retaining individuals who would help grow the business. Among them was former Merrill Lynch banker Michael Jang, who became critical in a David versus Goliath deal where Loop Capital beat out multinational investment banks on a structured underwriting of nearly $1 billion of general obligation refunding bonds for New York City–the largest underwriting deal completed by a minority-led syndicate in the city’s recent history.
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