Harris Fricker is a scholar.
Ask him how he came to be the investment banker who sold a good chunk of Canada’s steel industry, and the onetime Rhodes Scholar will take you on a long rhetorical tour touching on geopolitics, philosophy and economics.
The smarts come in handy in a job like running . Ever since the big banks took over the brokerage business on Bay Street, there’s not been much room for the independents—even for a top shop. In the era of Big Five dominance, the most successful independents have been risk-friendly, hard to manage—and short-lived. So, smarts, while important, may not be enough, especially now that GMP is going through the biggest change of its short life.
“When you’re in a world where people will eat their young at the drop of a hat, you also have got to be tough as nails,” says a senior Bay Streeter who knows GMP well. “A lot of guys who are smart, aren’t tough. A lot of guys who are tough, aren’t smart. At this stage of transition and succession, you need someone who is very smart, and very tough.”
When you look at Fricker, who is 47, this is what you see: the neck of a bull, closely cropped hair, a blocky physique that an expensive suit can’t quite disguise—all told, things that suggest a love of the gym and martial arts. The guy doesn’t stride into a room so much as barge.
Harris Fricker is a scrapper.
And now, using both sides of his personality, he needs to put his stamp on a firm—originally Griffiths McBurney Partners—that doesn’t bear his name. Lowering the curtain definitively on the firm’s first era, Brad Griffiths died in a boating accident last summer. Co-founder Gene McBurney, 63, while still on the board, long ago stepped back from most management roles to concentrate on dealmaking. GMP’s legendary trader, Mike Wekerle, left last summer, and Kevin Sullivan, 52, handed over the CEO keys to Fricker in late 2010.
What Fricker must do is turn a business built on the talents of a few highly visible stars into one that can endure for the long haul. A place that started with a handful of people now boasts a 950-strong head count around the world. GMP and Canaccord Financial stand alone as the only independent brokerages that have achieved the kind of scale in Canada to compete with the big banks on many deals. And Fricker, that student of the big picture, knows the Street is watching to see if GMP, having burned brightly, will flame out like the top independents that came before it.
Rodney’s Oyster House, as of 1994, was a tiny subterranean watering hole just far enough from Bay Street to make it a favourite of the crowd at Gordon Capital, Brad Griffiths among them. “Back in those days, there was nobody better to have lunch with when you knew you weren’t coming back than Brad Griffiths,” Gene McBurney says.
Griffiths was an investment banker at Gordon, which had been the predominant independent brokerage on Bay Street in the 1980s but by now was past its peak. He did a lot of work with McBurney, a corporate lawyer.
Both men had news when they met at Rodney’s for lunch one day in November. McBurney went first. He told Griffiths his plan—to leave law and join Griffiths as a banker at Gordon.
Griffiths saw a problem with that. He was leaving Gordon. But he too had a plan. “I’m going to start a new firm,” he told McBurney. “And I’m going to start it with you or without you.” That afternoon they sketched out a business plan on a napkin. They started the firm with $100,000. Griffiths advanced McBurney his half.
McBurney and Griffiths knew how to do deals, advising companies on how to raise money or buy rivals. But they needed someone who could trade stocks to really make the business go.
Bankers without traders are operating in the dark. A banker looking to raise money for a company needs to understand the appetite in the market for the company’s stock. A good trader, working the ebb and flow of the market, knows who will buy any stock, at what price, and how much. A really good trader will have a loyal following of clients, built up over years of helping them out when they needed to buy hard-to-find securities or sell ones nobody else wanted.
Griffiths and McBurney knew whom they wanted to build their trading desk—a youngster named Michael Wekerle, who was making a name for himself as a go-to trader at First Marathon Securities, another independent power. McBurney bet that Wekerle wouldn’t be able to resist the prospect of stock in a new start-up. And the same went for Kevin Sullivan, also at First Marathon. Sullivan, working on the sales desk, was on track for a leadership role at the firm, but, like Wekerle, was frustrated that he had no ownership stake in the company nor a say in how it was run.
When Wekerle and Griffiths met, “it was like Thelma meeting Louise,” says McBurney. “They were so magical together in terms of the ideas they threw around. I could see Wek getting increasingly more and more intrigued.”
Still, it took a few months for Wekerle to come around after the firm opened for business in March, 1995. Sullivan joined too. GMP was off to the races, with McBurney and Griffiths drumming up deals for clients that wanted to raise money through stock sales, while Wekerle and Sullivan made the sales happen.
GMP was soon the hottest small brokerage on the Street—and not just figuratively. From a sweltering office in an old building in the shadow of the big bank towers, the firm cranked out deals. Unlike the brokerages at the big banks—like RBC Dominion Securities and Bank of Montreal’s Nesbitt Burns—GMP couldn’t lend. It also didn’t have a long-standing brand or decades’ worth of client relationships. It could only compete by being aggressive, by leveraging its guts and ideas.
One day in 1996, the partners gathered to weigh whether to go ahead with a pivotal deal. Sherritt International , a mining company, wanted to raise money. The banks wouldn’t bite because the company operated in Cuba, Sullivan says.
The deal, at $675 million, would be a big reach for GMP. It was to be a “bought deal,” a type of transaction pioneered at Gordon in the 1980s. Rather than selling securities to individual buyers, the bankers purchased them themselves and bet they could resell them. In this case, GMP would lead a group of independent firms that took on the transaction. It was, as Sullivan says, a “bet-the-firm deal.” If the securities didn’t sell, GMP would be stuck with them. It might not be able to shoulder the weight.
The partners debated whether to go ahead. “One of the partners said, ‘What if it doesn’t sell?’” Sullivan recalls. A colleague’s advice was to practise this line: “Would you like fries with your burger?”
But GMP’s feel for the market paid off: There were more than $1 billion in orders in three hours. The firm was on its way, enriching its bankers, traders and share owners, with bought deals defining its success. “The firm grew at an astonishing pace, because of the ability to bring together really good, energetic, honest, creative people,” says Brooke Wade, an entrepreneur who was one of GMP’s big early clients, as he built and sold chemical companies.
Despite the success, or maybe because of it, the original foursome lasted only a few years as a partnership. The first to go, in 1999, was Griffiths, for whom GMP was simply growing too fast. He had no appetite for ever-expanding administrative needs. “Brad would have preferred to keep it the way it was from the very beginning, just a small group of guys doing investment banking deals and trading stocks,” says Sullivan, who succeeded Griffiths as CEO. “The rest of us wanted to grow it. We wanted to build a business.”
There was another factor too, what McBurney calls Griffiths’s “demons.” The man loved a party, and struggled with alcohol during his time on Bay Street. “He was quite a man who enjoyed the social aspect of living life,” says Rodney Clark, the proprietor of Rodney’s, who remembers driving Griffiths home often. “I would pick him up when I’d see him, sort of like the farmer’s dog who was too far away from the barn.”
After Griffiths left, the remaining trio settled into relative stability. McBurney built the firm into a leading adviser to mining and energy companies, just as a commodity boom hit. The fees poured in. Wekerle ran the trading desk and Sullivan took the role of chief executive officer, managing the firm while still doing deals as time allowed.
Wekerle became the best-known trader in Canada, drawing business to GMP using skill, connections and sheer star power. Bankers at rival firms tell of companies including GMP in deals purely in hopes that “Wek” might begin trading their stock.
It lasted a decade, until GMP got so big that the CEO role became all-consuming. The firm’s expansion took it into asset management, retail stockbroking and private equity.
Sullivan, in the midst of helping long-time client Ned Goodman sell DundeeWealth to Scotiabank in 2010, realized how much he missed dealmaking and working directly with clients. He decided to give up the chief executive job and return to his old forte. The board turned to Fricker, who had been with the firm since 2002, working his way up to the position of president.
Less than a year later, Wekerle was gone, too.
Wekerle rolls up his sleeves to show one of his tattoos. It’s an intricate image of a tulip that he had inked in Holland. Tulips, of course, symbolize perhaps the most infamous bubble in financial history. “I look at that, I see a beautiful flower,” Wekerle says. “But in my mind: Be careful.”
Most who followed the firm weren’t surprised when Wekerle’s time at GMP finally ended. There had been rumours that he wasn’t as active on the trading desk. There was talk of hard partying. A video made the rounds online showing Wekerle being escorted off the stage at a roast after interrupting the speaker.
When he and the firm made it official in August, he got a $5-million goodbye; he’ll get half as much again once a two-year non-compete period is completed. Neither side wants to say much about the split.
Where everybody agrees is that in the wake of the sudden death of Wekerle’s wife in the spring of 2009, things changed for the father of five. Fricker says there was a “clear reduction” in Wekerle’s involvement. “That changed his world view,” Fricker says of the tragedy. “He wasn’t that interested or happy coming in and sitting on the desk on a day-to-day basis.”
And the business was changing. The role of the star trader was fading in a world increasingly dominated by computers doing the buying and selling, Fricker says.
Wekerle, now 48, agrees that becoming a widower changed his life. He acknowledges that he no longer had the appetite to work as much, saying he wanted to focus on his kids. And everyone was getting older. “The impact of Michael Wekerle was not the same as it was in the early days,” he says. “The impact of Kevin Sullivan was not the same, because of a bunch of issues, mostly personally related. We were not the guys that were going to work 24-7. We did that for 14 years.”
Wekerle disputes the idea that he was partying too hard. Drinking has always been part of the trading culture; it is useful to competitors, he suggests, to exaggerate his participation in the tradition. “When I go have four beers, I’ve had 24 beers,” he says. As for the infamous video, he calls it “unfortunate”—a late-night prank among friends that went wrong.
Wekerle acknowledges that he pines a bit for the old GMP, where things were smaller, less formal. “I am not as corporately structured,” he says. “Once you pass that Rubicon, you miss it, and I do.”
It only takes a few minutes with Wekerle to see just what he means by “not as corporately structured.” His bespoke suit is tighter than most that you see on Bay Street. That tulip tattoo is just one of a collection that covers not just his arms but also much of his torso. On one wrist, there’s a fancy Chopard watch. On the other, there’s a bracelet of beads—skull-shaped beads.
Wekerle has friends on Bay Street, sure, but he also hangs with movie stars—counting Mark Wahlberg as a friend—as well as tattoo artists. “I have some great friends who are artists,” he says. “They have a different sense of life.”
Wekerle still has plenty of business ventures on the go. He’s laid a big bet on Florida real estate, using the high Canadian dollar to snap up property at depressed prices. And after leaving GMP, he ran into gold executive Pierre Lassonde. During a walk, Lassonde counselled Wekerle to go back to work on the Street.
So he joined a group of buddies to try to build a fund company. Wekerle and his partners bought stakes in a mid-sized Toronto asset manager, Galileo Global Equity Advisors, and have ambitious plans to turn it into a multifaceted financial services firm. Although he is more enthusiastic than specific about plans at this point, he wants to use his ties to the rich and famous to advise them on managing money. As usual for Wekerle, he’s bubbling with ideas. “This is just the beginning of something that is going to be spectacular as a financial services firm,” he says. “I look at this in a broader sense, including private equity, including other products that, as the cycles change, we want to be at the forefront of those changes.”
What about GMP and its expansion globally? How will that end? He points to the problems other Canadian companies have had abroad. “I wish them the best, but it’s a difficult challenge.”
For Fricker, the aficionado of martial arts, it’s all about leverage. In a fight, he uses jiu-jitsu or wing chun, techniques that seek to overcome an opponent with minimum effort. There’s a lesson there for GMP. The smaller opponent can defeat the larger. Fricker likes to quote Archimedes: “Give me a lever and a place to stand, and I will move the world.”
Fricker is the first CEO to run GMP who wasn’t there at the beginning. At the best of times, being CEO of an investment bank is a grind. Egos at the firms, fed by million-dollar paycheques, get big fast. The fights can be vicious, mostly driven by money.
Unlike banks, which pay base salaries and bonuses once a year, GMP pays monthly, in cash, using a formula tied directly to how much revenue the staffer generates. The formula is 60% to the house, 40% to the bonus pool.
The bonus pool is a zero-sum game. If one person gets a dollar more, someone else has to get a dollar less. This can be as divisive at GMP as anyplace else. “It’s not an easy place to run,” says Barry Allan, head of Marret Asset Management, a client of GMP’s. “Anybody who can keep it under control is doing a really good job. He [Fricker]has only been in the job a year, but so far there’s every indication he’s doing that.”
It doesn’t make things any easier that the markets are awful. Firms like GMP that are focused on resource stocks and smaller companies are hit hard when the world wants big safe stocks, dividends and bonds. None of those have been core plays for GMP, and the firm is suffering. Bonuses are nosediving, GMP is struggling to make money, and some analysts are questioning whether a commitment to paying out a high dividend makes sense for a cyclical business like a brokerage. (GMP’s stock, meanwhile, was trading around $6 and $7 in November, compared to the $20 to $25 range it was in five years ago.)
Against that backdrop, Fricker and his partners at GMP are trying to also defy history. They face a challenge that has spelled the end of many of the fast-growing independent firms that Bay Street has spawned in the past three decades.
The lifespan of the successful independent brokerage in Canada is short. A group of guys get together, found a business, expand it by using their entrepreneurial guile to steal business that the slower-moving big banks view as their birthright, and grow rich. Whether it be greed, egos, pride or bad luck, few big independent securities firms in Canada survive more than one generation these days. Gordon Capital, the firm on which GMP was in many ways modelled, was sold, ending up part of HSBC. First Marathon, where two of GMP’s key partners came from, was gobbled up by National Bank of Canada. Newcrest Capital disappeared into Toronto-Dominion Bank.
GMP’s plan is to grow its way out of that syndrome, using Goldman Sachs as a model: the big independent that can go toe-to-toe with the banks. In fact, GMP is already a curious blend of its former and future selves. The firm still sees itself as the aggressive outsider, but it has one foot in the establishment that it once shunned. GMP’s partners in the wealth-management business are the old-money billionaire Richardson family in Winnipeg. Together they have built a network of 109 teams of financial advisers across Canada, overseeing assets of almost $15 billion for clients. And GMP was invited to be a member of the bank-led Maple Consortium that’s looking to acquire TMX Group Inc.—better known as the owner of the Toronto Stock Exchange. Finally, GMP, once a company that dealt mostly in stocks, is branching out to new markets. Fricker’s first big deal was to pay $44 million (U.S.) to acquire Miller Tabak Roberts Securities, a New York-based boutique specializing in bonds. So GMP now has offices in Manhattan as well as in London and Perth, Australia.
The moves abroad aren’t big bets, Fricker argues, but they give the firm leverage because it can offer clients more options. Instead of just selling stock for a client, GMP can now help the company issue bonds.
The power of leverage dawned on Fricker when he was at Oxford University, where he studied economics and philosophy. He arrived as a poor kid from Cape Breton, having grown up in Ingonish, the son of a nurse and a construction worker, believing that you had to sweat for every dollar. Among the spires of Oxford, he saw other kids who believed they deserved big rewards. He liked that better.
“As a blue-collar Catholic kid, you had to bleed under your armpits in order for one unit of input to create 1.2 units of reward,” Fricker says. “And then I was around kids at Oxford who believed that one unit of input was worth 100 units of output and they had no guilt.”
He came home and landed in finance, in no small part to pay the school bills. His first job was at Bank of Nova Scotia, working with an assistant to the CEO. He did stints at various firms on Bay Street, logging experience in bonds and derivatives, as well as trading and investment banking, before heading to Silicon Valley during the tech bubble. He and his partners sold their company in 2002, and he came back to Canada and joined GMP—which had long been an ambition, he says.
When he got there, he focused on the dirty businesses. Chemicals. And steel. There was a fascination with steel dating back to seeing his dad carry it on the job. How was it made? Who made money from it? Certainly not the guy humping it around the building site.
Fricker also foresaw a global boom and consolidation in the industry, driven by emerging markets. He got to know the players, and when it came to pass, he was the go-to banker. He helped finance Algoma Steel, and sell companies such as Harris Steel and Atlas Tube.
It was an epic run. Fricker’s father may not have made much money dealing with steel, but Fricker and GMP did. It also left Fricker in a funny spot. “One of the downsides is we were so successful in the steel industry that we sold all our damn clients. There was no one to talk to.”
GMP had been grooming Fricker for bigger things, making him president in 2009. Yet when Sullivan asked him about taking over the CEO job, Fricker hesitated. He loved banking. The strategy, the thinking, the idea of helping companies figure out their future—then making it happen.
He could also well end up taking a pay cut. Certainly he would make less than in the best years as a banker. He thought about it a week. Then he took the job, precisely because of the challenge of helping GMP buck the trend of independents that haven’t taken the next step. “Money, status, just weren’t the things any more,” he said. He wanted to be CEO because “I think this firm can be something that hasn’t been done before in this country, and that is be a large, viable independent alternative to the bank-owned dealers.”
When the phone rings with a too-good-to-be-true rumour about a banker’s defection, or a loss on a trading desk, or a deal that’s struggling, or some other hot news tip, more often than not it’s about GMP. They rarely prove true. But these calls do prove one thing: The competition is fascinated by GMP.
Bay Streeters gossip about GMP more than probably any other firm on Bay Street. When bankers grouse about peers at other firms making too much money (generally defined as “more than me”), they usually point to GMP and its direct-drive pay structure.
“They are doing it now. It’s ‘Wekerle’s gone, Sullivan’s gone, Gene’s moving out of the business. They are all rich, fat, they don’t care any more.’ I know because I hear it from our clients, who are very loyal,” says Sullivan.
It clearly gets under Sullivan’s skin. He’s suspicious about this story, concerned that it will be full of rumours planted by competitors. “That’s my supposition because that’s the way I’m hard-wired now because they have bashed us continually.”
McBurney is more sanguine, wearing the attention as a sign of success. “Do you ever hear rumours about the Kansas City Royals? No. But you hear them about the New York Yankees. That’s just the way it is.”
Can GMP really be the Yankees, the long-lasting dynasty, when other firms have only managed a few good years before the stars fade?
Sumit Malhotra, an analyst at Macquarie Group who has followed GMP for years, sees ample opportunity if Fricker can pull off the transition from one generation to the next, and from the commodity-focused, small-cap stock firm to one with a wider range of products like bonds.
“Bottom line, if they do it properly, the next stage of GMP will be a dealer that remains more nimble and targeted than the banks, but also one that has more tools in the kit than smaller independents,” he says. “The names will change, but the structure remains in place for GMP to stay the pre-eminent name in the Canadian independent brokerage space.”
A SUPER MODEL The leaders at GMP hold up Goldman Sachs Group as their model for an independent firm that has evolved into a dominant investment bank. It’s an audacious comparison, and not just because of Goldman’s size and success. Goldman epitomizes what all of “the 99%” dislike about the banking business, especially since Rolling Stone’s Matt Taibbi famously likened the firm to “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
Here’s a handy checklist for emulating Goldman, without ending up as a bloodsucking cephalopod:
DO • Take a small partnership and transform it into a far-reaching power
• Make millionaires of dozens of partners
• Be “long-term greedy,” shunning short-term temptations
• Become a finishing school for public officials
• Advise Greeks on finessing their debt
• Have one of your directors make helpful phone calls to Raj Rajaratnam
• Create opaque collateralized debt obligations like Abacus—unless you want to pay half a billion dollars in fines
• Turn the finishing school into a “revolving door”