Drexel Burnham Lambert
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Drexel Burnham Lambert was one of the most profitable Wall Street investment banking firms during the late 1970s and most of the 1980s. The firm was founded in Philadelphia as Drexel & Company by Francis Martin Drexel.
Drexel's son, Anthony Joseph Drexel became a partner in his father's banking firm at age 21, in 1847. The company made its money in the opportunities created by gold discoveries in California. The company was also involved in financial deals with the federal government during the Mexican War and the U.S. Civil War. A. J. Drexel became the head of Drexel & Company when his father died in 1863. He partnered with J.P. Morgan and created one of the largest banking companies in the world, Drexel, Morgan and Co.[1] The firm subsequently assumed its original name.
After merging with Burnham & Company, the company was renamed Drexel Burnham.[2] Drexel Burnham then fell into financial difficulty, at which point Groupe Bruxelles Lambert made a sizable investment. Due to this investment, it assumed the name Drexel Burnham Lambert.[3].
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[edit] Business
Drexel's legacy as an advisor to both startup companies and fallen angels remains an industry model today. Among its notable employees was economist Abby Joseph Cohen, its vice president in charge of investment strategy. The firm rose from the bottom of the pack to compete with and even top the Wall Street bulge bracket firms. Drexel, however, was more aggressive in its business practices than most, and organizationally the firm experimented with the traditional management model. The firm also popularized high yield debt, popularly known as junk bonds, dominating that market through much of the 1980s. The firm had its most profitable fiscal year in 1986, netting $545.5 million. In 1987 the firm's star bond trader, Michael Milken, earned executive compensation of $550 million for the year.[3]
In the late eighties, the convictions of Ivan Boesky and Drexel employee Dennis Levine, as well as the later trial of Michael Milken for insider trading and securities fraud brought an end to Drexel.[3] The firm filed for bankruptcy in 1990. DBL Trading, a subsidiary, was involved in the temporary gold loan default with the Central Bank of Portugal at that time.
[edit] Criticism
By the late 1980s, public confidence in leveraged buyouts had waned and criticism of the perceived engine of the takeover movement, the junk bond, had increased. Innovative financial instruments often generate skepticism and few have generated more controversy than high yield debt. Some argue that the debt instrument itself, sometimes dubbed "turbo debt," was the cornerstone of the 1980s "Decade of Greed." However, junk bonds were actually used in less than 25% of acquisitions and hostile takeovers during that period. Nevertheless, by 1990 default rates on high yield debt had increased from 4% to 10%, further eroding confidence in this financial instrument. Without Milken's cheerleading, the liquidity of the junk bond market turned dried up. Drexel was forced to buy the bonds of insolvent and failing companies, which depleted their capital and would eventually bankrupt the company.
Following the bankruptcy of the firm a few companies emerged from the reorganized Drexel Burnham Lambert. Burnham Financial Group currently operates as a diversified investment company, and Drexel Burnham Lambert Real Estate Associates II operates as a real estate management firm. Apollo Management, the noted private equity firm, was also founded by Drexel alums led by Leon Black.
[edit] Famous Drexel Alumni
- Abby Joseph Cohen, partner and chief U.S. investment strategist at Goldman, Sachs & Co
- Marc Faber, formerly managing director of Drexel's Hong Kong office, famous for the Gloom Boom Doom investment report "Dr Doom"
- Michael Milken former head of the non-investment-grade bond department; almost single-handedly created the market for "high-yield bonds" (also known as "junk bonds")
- Dennis Levine
- Ken Moelis, head of investment banking at UBS
- Jeffrey Chanin, founder of Chanin Capital Partners
- Todd Fisher, Senior Partner at Kohlberg Kravis Roberts & Co
- Leon Black-Apollo Advisors
- Kurt Feuerman-Caxton Associates
- Andrew Wallach-Cumberland Assoc
- Peter Sidoti- Sidoti & Co
[edit] References
- ^ The Man Who Made Wall Street: Anthony J. Drexel and the Rise of Modern Finance.
- ^ "Drexel Burnham Lambert: A Ten-Year Retrospective." Scott, J. Ludwig von Mises Institute. March 16, 2000.
- ^ a b c Den of Thieves. Stewart, J. B. New York: Simon & Schuster, 1991. ISBN 0-671-63802-5.
