'Miracle' player sets big goal at MJSK
Twin Cities Business Journal

Nicole Garrison-Sprenger

In 1980, Robert McClanahan played on the U.S. Olympic hockey team that beat the undefeated Soviet Nationals for the gold medal -- a feat recalled in the recent movie Miracle.

Now McClanahan has a job that some observers say is just as daunting: Turn into a contender in the institutional brokerage world.

McClanahan, former head of trading at the Minneapolis office of ThinkEquity Partners, recently joined Minneapolis-based MJSK as director of equity capital markets. That puts him in charge of institutional brokerage and research -- the business of advising and trading stocks for large institutions. That business accounts for only $2.5 million of MJSK's $33.6 million in revenue. McClanahan plans to boost that to $15 million in the not-too-distant future.

Most of MJSK's revenue comes from its retail brokerage business -- advising and trading stocks for individuals.

McClanahan said his plan to shore up the firm's institutional business hinges on increasing the number of companies the firm follows and bringing in more people to follow them.

"We're not going to be very big," McClanahan said. "We're going to grow slowly and deliberately. ... To use an old Herb Brooks cliche, 'We don't want the best people, we want the right ones.' "

Two of those people, also from ThinkEquity, are Steve Dragos and Michael Schemel, who joined MJSK's equity capital markets group with McClanahan. Reed Anderson, a former analyst with Arlington, Va.-based Friedman, Billings, Ramsey & Co., will become director of research.

A veteran trader, McClanahan's résumé includes stints at Bear Stearns & Co. Inc., Credit Suisse First Boston and Piper Jaffray & Co.

McClanahan started his career in financial services as an intern at Morgan Stanley while playing hockey for the New York Rangers.

"I was looking for something outside of hockey because I knew I was no Gordy Howe (a Hall of Famer who played 33 professional seasons from 1945 to 1997) and I needed another line of work," he said.

The game plan

McClanahan plans to carve out a niche by covering Midwestern companies.

"We think the Midwest is an undercovered area right now," he said. "We're not going to have an impact on Medtronic ... but there are some companies out there that are not Medtronic's size."

Tony Carideo, president of The Carideo Group Inc. in Minneapolis and a former MJSK analyst, said coverage of regional small-cap stocks has indeed dwindled in recent years.

"There were many small brokerage houses doing it like Piper Jaffray, Dain Rauscher, John G. Kinnard and Equity Securities," he said. But there's a reason why those stocks are undercovered in the institutional world today. "Big institutional investors are sometimes reluctant to trade heavily in these stocks because they are hard to buy without having a tremendous impact on the price and they are hard to sell without having a tremendous impact on the price."

MJSK's 20-person equity capital markets group covers 40 companies, but McClanahan plans to hit 75 to 100 by the end of the year. In three years, McClanahan's group should consist of 30 to 40 people.

MJSK's decision to shore up its institutional brokerage division is in stark contrast to Wells Fargo & Co.'s Aug. 2 announcement that it would exit the business. Other firms have cut back their institutional-brokerage operations because of increasing costs and smaller returns, though Piper Jaffray will open an institutional-trading desk in Boston.

MJSK executives say an institutional business makes sense for the company.

"Having a number of different legs to the stool makes for a stronger business," said David Johnson, CEO of MJSK. "What didn't work for Wells Fargo on a national scale works for us in a smaller environment."

Still, industry insiders say the forces that led to the close of Well's Fargo's institutional business will make McClanahan's task at MJSK difficult.

Attracting new analysts will be expensive -- from $80,000 to $175,000 in base salary per person. The firm does have some cash from a $10 million damages award it received in a suit against competitor Northland Securities Inc. in Minneapolis.

Making enough money to support those analysts is difficult.

"It used to be that ... brokers would make 5 cents a share to trade those shares, but now if they get paid a penny or two, they are lucky," Carideo said.

The rising popularity, even among institutions, of trading electronically is another obstacle, said Jim Ulland of Minneapolis-based Ulland Investment Advisors.

McClanahan, who describes himself as aggressive and determined, is aware of these obstacles. "There's always an inherent risk, for reasons out of our control, that this task is a little more daunting than we envision," he said. "But I don't think it is."