At a time when other banks are slashing costs and cutting staff, Cantor Fitzgerald is shrugging off questions about its financial health and says it will continue expanding.
The New York investment firm earlier this month said it planned to buy Irish stockbroker Dolmen Stockbrokers for an undisclosed sum as well as hire at least 200 staffers for its brokerage unit over the next year. The next day, Standard and Poor’s cut its credit rating to one level above junk, in part, because of the firm’s expansion plans, which S&P believes may increase “operational and business risks, and potentially increases the company’s financial risks.” S&P didn’t respond to requests for comment.
The downgrade won’t dissuade the firm from hiring, said Cantor Chief Executive Shawn Matthews. “We do plan to hire a couple hundred people [next year] despite the downgrade,” Matthews told eFC. “S&P believes the securities markets are unsettled, but we see opportunities to grow and diversify.” The bank wants candidates for its investment banking and asset management groups, as well as to fill specialty finance roles, among others, Cantor told eFC.
Cantor currently employs more than 1,600 people, up from 1,400 early last year, Matthews said.
Moody’s Investors Service downgraded Cantor’s credit in October, three months after Cantor requested Moody's withdraw coverage of firm. In a November statement, Cantor said it disagreed with Moody’s conclusion and reiterated its request to withdraw coverage while reporting that profit rose almost 50% during the first six months of 2012 compared with the year-earlier period. Moody’s no longer follows the firm.
Cantor has consistently added headcount and entered new business segments over the last decade after losing two-thirds of its 960 employees in the 9/11 terrorist attacks. The investment bank has created new fixed income and trading units, an asset management group and, most recently, a commercial real estate brokerage business.
Cantor acquired Irish securities firm Dolmen Stockbrokers earlier this month, despite the dire financial difficulties in Ireland. Dolmen CEO Ronan Reid told Bloomberg that the securities firm narrowed its pretax loss from $3.3 million in 2010 to $2.5 million a year later. Revenue from the first ten months of 2012 has dwarfed last year’s total, Reid told the news source. Matthews said the team at Dolmen will “remain intact.”
Cantor’s ability to fulfill its pledge to hire hundreds next year may depend on the success of its recent hires and newer business units.
“There’s always a lag in hiring and the generation of revenue,” said Richard Lipstein, managing director at executive search firm Gilbert Tweed Associates. “How quick will their recent hiring result in revenue? Will their real estate business and other units support their [brokerage] hiring?”
Cantor’s acquisition of Dolmen, a move that Matthews believes will enable the firm to become the top fixed-income dealer in Ireland, will also have a large impact.
"Cantor’s immediate need is to show that the existing expansion and the purchase of Ireland’s Dolmen Stockbrokers will yield greater profit quickly,” said Peter Laughter, CEO of Wall Street Services, a New York-based financial services recruiting firm.
If Cantor does demonstrate increased revenue, the firm will likely be able to resume expansion plans, said Laughter, who believes Cantor will increase its use of consultants for compliance and back office openings to give them flexibility and support. Matthews told eFC that all 200 anticipated hires will be full-time, in-house staffers.
Credit downgrades aren’t a death sentence, but they certainly can be an impediment to success. Worries over whether Jefferies’ balance sheet could support its growth, in part, obliged Moody’s in October to cut the firm’s credit rating to one notch above junk bond status. Jefferies was later acquired by holding company Leucadia, a move that some believe enabled the firm to retain its full staff.