Cowen eyes growth after rocky start

By Joseph A. Giannone

NEW YORK (Reuters) - Investment bank Cowen Group Inc. (COWN.O: Quote, Profile, Research, Stock Buzz) got off to a rocky start after its July spin-off from Societe Generale, but Chief Executive Kim Fennebresque said the firm now has the freedom to build an asset management business and expand its merger advisory practice.

France's SocGen (SOGN.PA: Quote, Profile, Research, Stock Buzz) sold 75 percent of its outstanding Cowen shares in a $180 million IPO that was priced at $16 a share, well below the forecast range of $19 to $21. Thanks to a recent rally, the shares, which lost 16 percent of their value by August, are now up 2.6 percent since the debut.

"We had the problem of going out with a price that made no sense, though the deal got done," Fennebresque said at the Reuters Investment Banking Summit on Tuesday. "We created an air of plenty, which in the equity business is a bad thing."

That "rocky start" has clouded the bank's potential for growth as an independent firm, he said, but added it now has freedom to expand into other businesses that were off limits when it was the unit of the giant French bank.

"We are growing," said Fennebresque, named CEO of SG Cowen in 1999 after a 22-year career at First Boston, Lazard Freres and UBS. "I know our business is performing well."

The 98-year-old New York firm focuses on merger advisory and underwriting for smaller companies in faster growing sectors such as technology, health care and media.

It is planning a middle-market initiative targeting hedge funds. On the M&A front, Cowen hired Don Meltzer last month from Credit Suisse as its head of investment banking. That hire is among a series of changes to the firm's 100-strong banking staff, Fennebresque said.

Fennebresque said the bank may look to expand coverage of consumer companies, alternative energy and financial technology, but he does not see expanding into every sector.

"We're not going to build a mini bulge-bracket firm. If we did that we'd get crushed," he said.

Instead, in a market dominated by big firms like Goldman Sachs Group and Morgan Stanley, Fennebresque said Cowen can compete by focusing on a few select industries and attracting talented deal makers who want to take part in building a business.

"We are a boutique on steroids," Fennebresque said. "We'll attract people to our platform, and it does not have to be a lot of people."

In the meantime, Fennebresque said he expected the recent increase in takeover activity will continue.

"I think this could on go for quite some time," he said, though he mused merger cycles depend less on prices and valuations as on the confidence of CEOs.

"When stock prices go up, CEOs aren't just running companies: they are now also geniuses and they want to spread their genius and so they buy other companies."

Fennebresque's main challenge is to build new businesses that can bolster its M&A and stock-trading activities, which are prone to wild swings. After posting one of its best quarters ever in the spring, Cowen last week reported a net loss driven by the slump in stock underwriting fees.  Continued...