By Lauren Thomas | Photographs by Victor Llorente for WSJ

Many investment banks thinned their ranks as dealmaking sputtered in the past few years. Jefferies took the opposite approach.

The bank is spending hundreds of millions of dollars to lure top bankers from competitors. The goal: become the world's fifth-largest investment bank and maintain the spot year after year.

So far this year, Jefferies is the seventh-largest by investment-banking revenue, up from 11th a year ago, making the goal sound relatively modest. But achieving it would require unseating a giant. The top five list for years has included JPMorgan Chase, Goldman Sachs, Bank of America and Morgan Stanley, along with either Citigroup or UBS.

Jefferies' push has drawn skepticism from competitors on Wall Street, who say similar quests have been tried time and again, including by Jefferies. It also comes as peers ranging from Lazard to UBS have their own ambitious plans to move up on industry league tables.

Citigroup, currently number five, is attempting its own revival. It hired Vis Raghavan from JPMorgan earlier this year to run its corporate and investment bank, as part of a broad restructuring plan to revive its fortunes.

Jefferies Chief Executive Rich Handler and President Brian Friedman say their big bet is already paying off and will continue to do so as deals return in full force. The strategy, they say, is a continuation of what Jefferies has been quietly doing since the two of them took the reins more than 20 years ago.

"We try to do nothing stupid or arrogant during the good times, and then play offense during the bad times," Handler said in an interview at Jefferies' Manhattan headquarters. "As we've built the firm, we've always prioritized what will be best for the firm over the next 10 years, not just the next year."

Jefferies started as a small equities-trading shop in 1962 and over time became known for its leveraged finance business and work on smaller mergers and acquisitions. It has been the go-to bank for activist investor Carl Icahn and smaller private-equity firms.

Deal volumes collapsed in the past few years after a pandemic-induced frenzy in 2021. Early signs of a recovery have propelled the stocks of deal-focused banks, including Jefferies and Evercore. Both banks' shares are up more than 60% so far this year.

The momentum has swelled Jefferies' market value to $14 billion. But it is still dwarfed by the bigger banks it hopes to challenge, all of which do much more than investment banking.

Since 2020, Jefferies has increased its number of managing directors -- the most senior bankers -- by about 70% to around 360. The majority came through hiring as a deal slowdown, stumbles at competitors and the collapse of Credit Suisse meant that more seasoned bankers were receptive to overtures.

The hiring spree has been fueled in part by Sumitomo Mitsui Banking Corp. The Japanese bank invested in Jefferies in 2021 with the goal of expanding its business globally. It became one of Jefferies' biggest shareholders earlier this year when it boosted its stake to 15%. Analysts have speculated that SMBC could eventually buy Jefferies outright.

Handler and Friedman are set to update investors on their progress Monday when the firm holds its annual investor day.

Pitching the 'last frontier'

Jefferies attracted recruits with eye-popping numbers, in a few cases offering superstar dealmakers salaries of more than $10 million a year for the first three years, according to people familiar with the matter. It also promised bankers greater autonomy to pitch clients, free from the pressure at larger banks to constantly sell services from other parts of the firm.

Competitors, including several who have been approached by Jefferies, are quick to point out that the paydays come with fine print. Jefferies' so-called clawback model asks bankers to pay back their salaries if they leave within a certain number of years for a competitor. Plus, the pay can drop significantly after the guaranteed period if a banker hasn't brought in a lot of work.

Rivals also knock Jefferies' reputation for having a competitive, eat-what-you-kill culture.

Bank insiders say the constraints have lightened up and the culture has improved since Ben Lorello, known for his aggressive managing style, retired as global head of investment banking and capital markets in 2020.

Friedman said Jefferies has managed to maintain a workplace known for its entrepreneurship and still being a "flat organization" despite the bank's rapid global expansion in recent years.

One of Jefferies' biggest gets came after Barclays stumbled in its own attempt to challenge the banking industry's biggest players. Jefferies soon hired more than a dozen bankers from Barclays, including John Miller, who had been co-head of the investment bank.

When Barclays reshuffled its ranks with new leadership, Miller said Friedman, whom he had never met, called him "within moments." His pitch: Jefferies was the "last frontier" on Wall Street for those who wanted to work at a stand-alone investment bank, without the complications of bigger institutions.

Miller was installed as the global head of Jefferies' investment-banking and capital-markets unit, leading the division alongside Raphael Bejarano, a Jefferies veteran.

Miller said in an interview the vibe at Jefferies reminds him of his time at Lehman Brothers in the early 2000s, when the firm was driven by an entrepreneurial culture and a "take the hill" mentality. (Barclays bought a big piece of Lehman after it filed for bankruptcy in 2008, which is how alumni including Miller landed at the British bank.)

Miller says the bank is hiring surgically based on the industries and specific clients they expect to do deals. Part of his strategy involves encouraging bankers to win more private-equity work, especially from bigger firms such as Apollo and Carlyle.

Handler and Friedman had also hired a swath of bankers from Credit Suisse after it faced a forced sale in March 2023 and was folded into its Swiss rival UBS.

Other recruits have included Ron Eliasek, a technology banker from Bank of America; Chad Parker, an industrials and transportation banker from Barclays; Philip Ross, a healthcare banker from JPMorgan; and Becky Steinthal, an equity capital markets banker from Goldman Sachs.

At least one of the new hires, Richard Siegel, a building materials and distribution banker from Barclays, appears to have already paid off. Siegel helped Jefferies represent SRS Distribution in the roofing company's sale to Home Depot earlier this year. The bank's estimated fee on the deal was more than $40 million, according to Dealogic.

Write to Lauren Thomas at lauren.thomas@wsj.com

(END) Dow Jones Newswires

October 20, 2024 05:30 ET (09:30 GMT)

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