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— Dealmakers —
Richard Breeden, chairman of the Securities and Exchange Commission from 1989 to 1993 and former adviser to George H. W. Bush during his vice presidency and presidency, has been keeping a safe distance from the White House. Breeden manages his 2-1/2-year-old, $1.7 billion activist investment fund, Breeden Capital Management LLC, in Greenwich, Conn., generating a return of more than 10% as of Sept. 30, according to a source. (Breeden would not confirm that.) He could post such a healthy return because he also kept a safe distance from the financial sector. -- See the full Movers & shakers: Private equity slideshow -- Breeden's skepticism carries over to the bailouts designed to get the country out of its mess, and his resume gives him a measure of authority. He was the architect of the elder Bush's plan that resulted in the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which created the Resolution Trust Corp., a government-owned asset management company that from 1989 to 1995 liquidated $400 billion in assets of savings and loans that the Office of Thrift Supervision declared insolvent.
Breeden, 58, disputes the many comparisons of the bailout to the RTC. "At its core, [the RTC] was not a program that was bailing anybody out," he says. Instead, he says, it was created to take over the assets of failed institutions and repackage and sell them in "economically rational blocks." The current bailout is aimed at the balance sheets and toxic real estate-related assets of financial institutions that have yet to fail. This time, the government has "created a very large cannon but pointed it in the wrong direction," he says. "What's missing here is any help for John and Susan homeowner." Breeden suggests an alternative plan, under which the federal government would request that lenders cut the principal of troubled mortgages by 30%, and in exchange receive Treasury guarantees on the remaining 70%. This would eliminate the financial institutions' fears of further mortgage-related write-offs and solidify capital structures. The mortgages would eventually trade up in value while benefiting the homeowner, he says. Another suggestion would be for the government to make principal payments on mortgages deductible. "This would trigger a flood of prepayments, which would put liquidity in the hands of every bank and every holder of a mortgage-backed security." Protecting homeowners may be in the back of Breeden's mind, but his top priority as an activist is protecting shareholders' wallets. An "operational" activist, his long-only "hedgeless" fund aims to fix companies while they remain publicly traded. And by enhancing a company through tightening capital deployment, "getting compensation systems fixed," making management changes, evaluating corporate strategy or improving expense levels, rather than focusing solely on pushing them to be sold, Breeden's fund is somewhat insulated against tight capital markets. "Some activists in the easy days urged companies to load up on debt and pay extraordinary dividends or pushed companies to be acquired. For the most part, we want to see companies fix themselves and create sustainable, long-run increases in value." His approach paid off at jeweler Zale Corp. Less than two weeks after Breeden in September 2007 initiated talks with Zale about its financial performance and strategic options, the company announced the $200 million sale of Bailey Banks & Biddle to Finlay Enterprises Inc. In January 2008, Zale named Breeden and James Cotter, a founding partner of his fund, to its board. H&R Block Inc. named Breeden chairman in November 2007 after he pushed it to focus on its core accounting and tax preparation business. The company in August announced the $315 million sale of its brokerage business to Ameriprise Financial Inc. and in March sold the servicing arm of its troubled subprime mortgage lender, Option One Mortgage Corp., to billionaire investor Wilbur Ross Jr. for $1.1 billion. Breeden's activist approach is rooted in his SEC days. Under his leadership in 1992, the commission adopted executive compensation disclosure rules and established the "short-slate" regulation, which allows shareholders to contest individual board seats rather than having to nominate a full slate of candidates. Also in 1992, the SEC approved rules requiring compensation committees to explain executive rewards. "These rules helped make possible the activism you see today." Breeden's office is wherever his target companies are doing business. Earlier this month, he traveled to Orlando, Fla., to address 1,000 H&R Block tax practice managers preparing for tax season and the next day flew to Dallas for a Zale board meeting. The following week, he split time among Ohio, Indiana and New York City and the next week was in London and Madrid, where he serves on the board of Spanish bank Banco Bilbao Vizcaya Argentaria SA. His passport will get a few more stamps as he readies the November launch of his European fund. Breeden's career path is as varied as his travels. A native of Levittown, N.Y., he graduated from Harvard Law School in 1975 and briefly taught at the University of Miami School of Law. In 1976, he took a position in New York as an associate at Cravath, Swaine & Moore LLP and then at Willkie, Farr & Gallagher LLP. In 1981, he became an executive assistant to the undersecretary of labor and a year later became Vice President Bush's deputy counsel. Breeden re-entered private practice in 1985 as partner at Baker Botts LLP but soon returned to serve as Bush's assistant to the president until September 1989, when the president nominated him to be SEC chairman. From 1993 through 1996, Breeden served as chairman of worldwide financial services at Coopers & Lybrand and in 1996 founded consultancy Richard C. Breeden & Co., which focused on corporate restructurings. From 2002 to 2005, Breeden was the corporate monitor of MCI WorldCom Inc. for the U.S. District Court for the Southern District of New York. He helped steer the restructuring of the bankrupt telecom. The company was valued at about $300 million when he came on board, he says; it sold to Verizon Communications Inc. in 2006 for nearly $8.5 billion. Breeden lives in Darien, Conn., with his second wife, Linda, his 14-month-old son, Richard Jr., and 5-week-old son, Theodore, named for Teddy Roosevelt, who, "next to Ronnie Reagan and George Bush, is my favorite president." His other sons are a long way from diapers, at 28, 25 and 23. His second oldest, Prescott, is studying to be an opera singer at the Manhattan School of Music. While Breeden's path has taken many directions, the Long Island kid who moved to Southern California at age 7 left his heart with the New York Yankees. He laments that the mediocre 2008 team pales compared with the 1950s powerhouse of his boyhood. "The Yankees need to get focused on performance just like the companies I work with," he says. The Bronx Bombers might need a jolt of Breeden's operational activism. |
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