Jefferies CEO Frank Baxter to Relinquish Post

Frank E. Baxter, who helped rebuild Los Angeles-based Jefferies Group Inc. into a stock-trading powerhouse after its founder pleaded guilty to fraud in 1987, said Tuesday that he would step down as chief executive but remain active in the company as chairman.

Longtime Jefferies executive Richard B. Handler, 39, will become CEO, and John C. Shaw, 53, will remain president and chief operating officer, a post the two men have shared since January.

The transition comes as Jefferies, like many brokerages, faces increasing competition from all-electronic trading systems that threaten the firm’s core business of trading large blocks of stock for institutions.

Currently, 80% of the 38-year-old firm’s revenue comes from trading. Jefferies’ traders specialize in negotiating transactions for big investors who want to buy or sell blocks of shares or bonds quickly and at the best possible prices.

“It’s no question that trading is the backbone of this company and will continue to be,” said Handler, who co-founded Jefferies’ high-yield-bond division after leaving now-defunct Drexel Burnham Lambert. “But John and I are transitioning the platform to merchant banking, growing the corporate finance and analysts’ areas.”

Baxter, 63, one of the area’s more colorful CEOs, is a marathon runner who practices daily meditation. He is on a first-name basis with New Age guru Dr. Deepak Chopra, whom he met in 1991.

Baxter was born in a town called Baxter in Northern California, founded by his grandfather during the Gold Rush.

Baxter took over Jefferies in 1987 after its freewheeling founder, Boyd L. Jefferies, pleaded guilty to stock fraud in the notorious Ivan Boesky inside-trading case. Baxter decided to keep the Jefferies name on the firm, and quickly went to work to keep the company’s client base intact.

Though he is well-known in the brokerage industry for being highly personable, Baxter also earned the moniker of “the smiling assassin” for being tough and direct in his business dealings.

He made a key decision to expand Jefferies’ high-yield “junk” bond trading group by hiring dozens of traders from Drexel after that firm went bust in 1990. Though the junk-bond business worldwide dwindled in 1990 and 1991, it roared back by the mid-1990s.

Jefferies, under Baxter, also pushed into investment banking in the ‘90s, mainly raising capital for mid-sized companies. The firm also provides stock and bond research for institutions.

The company has nearly 1,000 employees in 19 offices worldwide. The team of research analysts now totals 42.

Baxter also helped direct the 1999 spinoff of Investment Technology Group, Jefferies’ electronic trading division.

New advances in trading technologies won’t harm Jefferies’ core relationship-driven businesses, Baxter insists.

“There are new technologies, but the old principles still work,” Baxter said. As long as you have a defensible niche--and that’s been our strength from the beginning--and the ability to zero-in on customers’ needs, you will survive.”

Baxter, who owns about 8% of Jefferies’ stock worth more than $50 million, is active in civic and charitable organizations, and is on the board of National Assn. of Securities Dealers.

He said he hopes “to continue to add value [at Jefferies] in an ambassadorial and advisorial role. One of the major responsibilities of a CEO is to effect a smooth transition, and that’s what I intend to do.”

Employees at Jefferies said Baxter’s role in day-to-day decision-making was already on the wane and said they weren’t surprised at the news.

Jefferies reported revenue of $377 million in the first six months of this year, up 16% from a year earlier; net earnings from continuing operations rose 4% to $27.4 million.

The company’s stock rose 13 cents to close at $27.06 on the New York Stock Exchange on Tuesday.