A Wall Street legend's firm dissipates

It's one of those hoary truisms that more deals are done on the golf course than on Wall Street. That doesn't seem to have worked for one of the Street's legendary M&A bankers, Eric Gleacher, who is also an avid and expert golfer.

Gleacher, 72, founded Lehman Brothers' M&A practice in the late 1970s and went on to lead the same business at Morgan Stanley, where he advised Kohlberg Kravis Roberts & Co. LP on the granddaddy of all leveraged buyouts -- the $30 billion buyout of RJR Nabisco in 1989.

But Gleacher, who claimed to a Fortune reporter in 2003 that it would be bad taste to talk business on the golf course, should have ignored his own advice.

Now that Gleacher has resigned as chairman of New York-based Gleacher & Co., the namesake boutique investment bank he founded and took public in 2003, he will have lots of time to pursue the game he loves.

When he announced his resignation in January, Gleacher was quoted in a company statement as saying: "I wish my talented colleagues at Gleacher & Co. all the best as they pursue their careers, compete in the marketplace and grow."

Which no doubt sounded like so much public relations natter to those 160 employees who will no longer have jobs when the company shut down its mortgage-backed securities and rates and credit products businesses Wednesday.

Gleacher has been trying to sell itself since last summer with Credit Suisse Group and Cahill Gordon & Reindel LLP as advisers. However, in mid-February when Gleacher reported a fourth-quarter 2012 net loss from continuing operations of $11.5 million, as compared to net income of $1.8 million the same time the year before, it also said it was going to remain a standalone business.

Eric Gleacher, an investment banking source said, should have spent more time making sure his company was closing deals rather than relying on Wall Street connections. Gleacher couldn't be reached for comment.

Then there was the matter of scale, which the company never achieved. From its market capitalization high of more than $1 billion in the third quarter of 2009, the firm's value has steadily declined to less than $86 million currently. Which meant it didn't have the kind of heft to play in the field to which Eric Gleacher was accustomed, according to a person familiar with the business.

The shrinkage continued in February when Gleacher took a $5 million write-down on mortgage lender ClearPoint Funding Inc., which was sold to Ocwen Financial Corp. subsidiary Homeward Residential Inc. Now Gleacher is left with a small fixed-income trading group and its investment bank. So it doesn't have much more to sell, except for some prospective advisory deals.

Which is why some industry watchers believe that liquidation is more likely than a takeover.

Gleacher said it is in discussions with a third party, said to be Birmingham, Ala.-based brokerage firm Sterne Agee Group Inc.

Sterne Agee didn't return a call seeking comment. A Gleacher spokesman said the company isn't talking to the media.

But Keefe Bruyette & Woods Inc. analyst Joel Jeffrey calculated that the remaining fixed-income business had little value, given the staff departures from that group.

Jeffrey wrote in a note: "assigning a multiple of 1-2X the investment banking unit's 2012 revenue and adding the $44.9 mil. of cash on the balance sheet as of December 31, 2012, we arrive at a rough value of $72-93 mil., or $0.60 - $0.83 per share. The stock is currently trading at $0.68 which falls within that range."

Besides the fixed-income traders who have jumped ship, the four directors who sat on the special committee overseeing the strategic review said they wouldn't stand for re-election because they expected a vote of no confidence from investor MatlinPatterson Global Advisers LLC, which has a 28% stake, and Gleacher himself, who still holds an 11% stake. MatlinPatterson has already said in regulatory filings that it will put up its own slate of directors at the May annual meeting.

Complicating matters is activist hedge fund Clinton Group. The firm said Wednesday that it likewise intended to nominate a slate.

Clinton Group declined to comment. MatlinPatterson didn't return a call seeking comment.

Restructuring specialist Houlihan Lokey Inc. is also involved, according to a person familiar with the situation, although it could not be determined in what capacity.

Whatever Sterne Agee is looking to acquire from Gleacher, industry watchers said, it's not likely to be more than a talent pool. Sterne Agee has been trying to build out its investment banking team and might want to make offers to bankers whose sector expertise would complement or expand their team.

But the investors are looking at that cash left on the balance sheet as being a decent enough return, according to one source close to the situation.

And his share of $45 million would buy Eric Gleacher a lot of golf balls.