The Wall Street Journal has been taking a look at the challenges facing stand-alone investment bank Lehman Brothers. The firm, some 33% owned by staff, is said to have rebuffed many merger approaches in the past, including one years ago by Deutsche, and has endured at a time when the likes of once-rivals DLJ, JP Morgan, Kidder, Salomon and SG Warburg have all been gobbled up.
Now the firm is still on a good profit feast, mostly down to the recent strong bond market run. And M&A, too, is on the up. According to Thomson Financial data, Lehman's share of US M&A business has risen from 9.6% in 2000 to 19.1% last year. This has resulted, in part, from the firm's decision to not try to be all things to all men and to focus on key areas like energy, healthcare and telecoms, where it felt it could make a difference.
But the pressure is now on, as the easy money in bonds is almost certainly over. What with the equity markets still flat, M&A will be a bigger revenue earner in 2005. And Lehman plans to get an even bigger share of the spoils - and not only in the US. Rumours that the firm was, at one time, seriously considering a bid for Cazenove, merely underline that Europe, and the UK in particular, have become an important source of revenues and focus for the business.
Lehman will need to continue to keep its eye on the M&A ball and go about its business in its usual no-nonsense style. And being still committed to standing alone will no doubt help the firm in the recruitment stakes. Who wants to join a firm if its a potential takeover target ? Lehman is also an attractive employer as it did not take a massive axe to staff when the going got tough during the recent industry downturn. Although some staff were clearly laid off, Lehman's headcount actually rose 9% between 2000 and 2002, at a time when Goldman is said to have axed 13% of its staff and Morgan Stanley culled 14%.
So, although the firm still faces interesting challenges ahead, it's better placed than many to capitalize on the expected uptick in M&A next year. Perhaps not in the big league yet, the firm will certainly be giving the big boys a run for their money. Only a fool would underestimate Lehman Brothers. And there are plenty of fools around.