There are not too many people on Wall Street or anywhere who could fill the giant shoes of Michael Milken, the modern-day J. P. Morgan whose innovative use of high-yield “junk bonds” transformed corporate America and made Drexel Burnham Lambert a Wall Street juggernaut.
Therefore, John H. Kissick won’t even try. He will design and fill his own shoes.
Kissick, a 14-year Drexel executive, has the challenging--some say unenviable--task of succeeding Milken as chief of Drexel’s high-yield bond operations in Beverly Hills. Kissick, who’s been serving as acting chief of the department for about a month, is widely regarded as an excellent manager with the people skills and respect needed to move the department forward and heal wounds caused by the departure of Milken amid criminal charges of securities violations.
But, Drexel workers and clients say, Kissick will lead the junk bond department in his own style, one vastly different from Milken’s.
“There’s no replacing Mike Milken,” a Drexel employee in the high-yield department said Thursday. “But Kissick was always the logical choice to succeed him. Clearly he’s at the top of his field. . . . He’s clearly one who welcomes the challenge.”
Kissick, 46, who previously headed Drexel’s West Coast corporate finance operations, has no experience as a bond trader. Thus, he won’t do much trading personally, and he won’t use the now-infamous X-shaped desk from which Milken ruled over Drexel’s massive junk bond trading floor. Instead, he will operate out of an office. He also doesn’t work the 15- to 18-hour days, sometimes six or seven days a week, that helped make Milken a Wall Street legend.
Kissick is said to be less authoritarian than Milken, more likely to defer to subordinates whose experience in the often arcane world of junk bond trading exceeds his own.
But, on the other hand, some Drexel insiders regard Kissick as a better manager than Milken. They say his diplomatic skills and broad financial knowledge make him just the right person to hold the office together, mediate disputes and maneuver the department through a period of tighter regulatory controls expected to be installed as part of an eventual settlement of insider trading charges with the Securities and Exchange Commission.
Indeed, the challenge--and the stakes--are enormous for Drexel, its clients and competitors.
Kissick must prevent defections of key employees and clients still shaken by Drexel’s willingness to settle federal civil charges of securities violations and fire Milken--a step that some employees regard as a sellout of the man who almost single-handedly propelled the firm from a Wall Street also-ran in the 1970s into one of its largest and most profitable forces in the 1980s.
Kissick must stem an erosion of Drexel’s once-dominant market share in junk bonds, which account for a major share of the firm’s overall profit. Competitors such as Merrill Lynch, Morgan Stanley and First Boston have eroded Drexel’s market share in public offerings of junk bonds in this year’s first quarter to about 17%, down from 42.8% last year, according to IDD Information Services.
Drexel’s continued dominance of private placements--such as the recent sale of junk bonds to help finance the $25-billion takeover of RJR Nabisco--bring its share of the overall market back up to nearly 60%, but that still is less than the company has enjoyed in past years.
“Essentially, the major issue facing Drexel is performance. Can they continue to perform in the same extraordinary way they have in the past?” said Fredric M. Roberts, a Los Angeles investment banker and Southern California district chairman for the National Assn. of Securities Dealers.
Colleagues and clients say Kissick is up to the task.
A valedictorian of his high school class who subsequently graduated from Yale, served in the Navy and earned a graduate business degree from Stanford University, Kissick appears to have done little wrong at Drexel. Recruited by Drexel Chief Executive Frederick H. Joseph in 1975, Kissick opened the firm’s corporate finance office in Los Angeles two years before Milken moved the junk bond operations there from New York.
In that capacity, Kissick has successfully wooed dozens of new and old West Coast companies as Drexel corporate finance clients, bringing in millions of dollars of revenue. As a measure of his importance, Kissick holds the title of executive vice president and sits on Drexel’s board-- making him by far the firm’s most senior executive in the West Coast, at least in title surpassing any rank that Milken had.
Kissick, a tall, well-dressed and handsome man who lives in Los Angeles with his wife and one child, also appears to be almost universally liked by colleagues and clients.
“He relates well to people. He’s a special guy,” says Martin R. Lewis, president and chief executive of Williamhouse-Regency, a New York specialty paper products concern and Drexel client on whose board Kissick has served as a director.
Drexel chief Joseph has called Kissick “one of the best managers Drexel has,” backing it up by often using Kissick as a trouble-shooter and problem solver.
“Whenever Fred has something special or major to get done, he’s given it to John,” said a colleague at Drexel. “If there were ever any clashes in the corporate finance department, even in New York, John has been the one to settle them.”
Big Test Next Week
Colleagues don’t see Kissick’s lack of experience in junk bond trading as a handicap, in part because of the group of 10 managers under him who have largely kept Drexel’s junk bond operations going as Milken became less and less available, immersed in his legal entanglements.
Those managers and others were largely responsible for Drexel’s successful sale earlier this year of $3 billion of junk bonds to help finance the takeover of RJR Nabisco by Kohlberg Kravis Roberts & Co. That was by far the largest sale ever of junk bonds and was done without the aid of Milken.
Kissick is expected to rely on those managers heavily as he gains experience in the trading arena.
One of Kissick’s first major tests will come next week, when he hosts Drexel’s 11th annual high-yield bond conference, sometimes dubbed the “Predator’s Ball” because of the corporate raiders in attendance. For years, it was Milken’s show. But now Kissick will give the welcoming address and is expected to be a focus of attention throughout.
“Obviously, Mike’s very hard to replace over there,” said John F. Nickoll, co-chief executive of Los Angeles-based Foothill Group, an occasional Drexel client that lends money to struggling companies. “But John’s a very capable, bright and talented individual, as are a lot of people over there.”