Dream-team investment banking

Peter J. Solomon

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NEW YORK (Fortune) -- Imagine you're running an expansion team and the New York Yankees run into major financial problems. Derek Jeter and A-Rod are suddenly available...and affordable. That's the position in the M&A world where Peter J. Solomon, the 70-year-old head of his own investment bank, finds himself today. Solomon left Lehman Brothers, where he was a vice chairman of the firm and co-chairman of investment banking, 20 years ago because he thought the existing business model on Wall Street was broken.

"When I started this firm, I thought Wall Street was going to fall apart," Solomon said in an interview with Fortune.com. "I thought Wall Street would turn into -- I never knew the word 'hedge fund' -- but I thought it would turn into an organization that invested its capital and did not pay much attention to clients. I am amazed at how long [that model] endured."

Now Solomon has seen his premonition come true. To celebrate, he's gone on a signing spree. Picking up four senior M&A bankers -- Richard Brail, Frederic Seegal, Fred Frank and Mary Tanner -- to add to his small cadre of 17 managing directors, a not-insignificant increase of around 25%.

"We are now able to recruit very important, very serious people," adds Solomon. "Partially I think it's because their firms have imploded and partially it's because the [government] has become a wonderful recruiting agent for us. When you cap bonuses and you cap compensation, it certainly gets the attention of people who are working in firms."

As a result, Solomon's privately-held and TARP-free firm has had its pick of bankers. In February, Solomon hired Brail, 41, who had spent the last 18 years at Morgan Stanley, to head its media and communications advisory practice. Brail advised Sirius on its merger with XM satellite.

Nine days later, Solomon signed up Fred Seegal, 61, a longtime media M&A banker at Lehman Brothers whose advisory work includes the Time Warner merger. (Fortune is owned by Time Warner.) "If you look at the landscape in New York and you want to be at a private, independent, investment-banking advisory firm, there is no firm that has the pedigree of Peter J. Solomon," Seegal says.

Finally, on March 18, Solomon announced that he had hired Fred Frank and Mary Tanner -- husband and wife -- who together had built the health-care practice at Lehman Brothers when Solomon ran investment banking there.

Frank, 76, most recently was vice chairman of Barclays Capital, which bought Lehman's U.S. investment banking business out of bankruptcy in the week after Lehman's collapse last September. Since joining Barclays, Frank advised CV Therapeutics on its $1.4 billion sale to Gilead Sciences, a deal announced March 12.

Tanner, 56, had been a senior managing director at Lehman and at Bear Stearns and most recently founded Life Science Partners to make health-care investments and to advise health-care companies. At Bear, she represented Pfizer in acquiring Pharmacia for $60 billion. The fact that Seegal, Frank and Tanner worked with Solomon at Lehman Brothers two decades earlier is no coincidence.

"Peter was a god in that era," explained Ed McGuinn, who was a member of Lehman's capital markets operating committee at that time.

But Solomon knew it was time to leave Lehman Brothers when he no longer "wanted to be in charge of people who were trading securities I didn't understand in time zones I rarely visited."

When Lehman failed last September, Solomon was not only shocked that its then-CEO Dick Fuld had allowed the firm to vaporize, but he also was upset from a personal, financial point of view, since his deferred compensation account remained at the firm from the time he was a partner.

Solomon remains a general unsecured creditor of the Lehman Brothers estate. There are roughly 500 other people in a similar position, including Blackstone's Steve Schwarzman and Evercore's Roger Altman as well as some 40 widows with a total claim of around $400 million. Solomon now has to stand in line behind all the secured creditors and will likely get just a few of the scraps, if any, that might fall from the firm's picked-over carcass.

The collapse of Lehman may have negatively impacted Solomon's personal income, but the tectonic shifts on Wall Street during the past 20 months have created a great opportunity for his firm. Solomon would not disclose his firm's revenues or earnings. "I don't discuss it," he said. "That's why I'm a private company." But Wall Streeters speculate his 2008 revenues to be around $100 million.

Solomon said he would like to see his firm grow to about 70 professionals -- from around 50 currently -- and he is interviewing top bankers in the paper, oil and gas and industrial sectors. He also knows that such a massive dislocation on Wall Street will give boosts to other small boutiques, such as Perella Weinberg and Moelis & Co. and will help the larger boutiques such as Lazard, Greenhill and Evercore, too. "Every day we compete against everybody," he said. "We can't rest on our laurels for more than seven seconds."

William Cohan is the author of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, published this month by Doubleday Books, a division of Random House, Inc.