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(Bloomberg) — A courtroom showdown between Perella Weinberg Partners and a group of former partners who were fired a decade ago has portrayed a gulf between M&A and restructuring bankers.
The monthlong trial, which neared a close Friday with the end of the presentation of evidence, has featured testimony by both Joseph Perella and Peter Weinberg, two Harvard Business School graduates who became Wall Street royalty. Pitted against them was the restructuring team led by Michael Kramer, who founded Ducera Partners after he was terminated from Perella Weinberg in 2015.
In his testimony, Kramer described how he and three other former Perella Weinberg bankers felt marginalized despite being a revenue engine that was “subsidizing” the firm’s mergers and acquisitions groups. But he and others also depicted a deeper divide, with the scrappiness and drive of the restructuring leaders clashing with the attitudes of their more pedigreed colleagues.
Kramer and his team claim they were unjustly fired and denied $60 million in withheld compensation. Perella Weinberg claims the men violated their partnership agreement by soliciting most of its restructuring group to leave in 2015 and subsequently launch Ducera, costing it tens of millions in lost fees.
Both Ducera and Perella Weinberg declined to comment for this story.
Perella and Weinberg testified that they believed the restructuring bankers were richly rewarded for their contributions, noting that Kramer made around $100 million during his time at the firm. Kramer acknowledged that amount on the stand but suggested it was still less than he deserved.
“It’s hard to look at anything and and say if you made $100 million that it’s not a good thing,” he said on the stand, adding, “I know how much value I created for the firm. I think the firm made well more than that.”
The trial has offered a rare look inside a prominent banking partnership. But it’s also shown how a boutique investment bank made a big push into the increasingly lucrative restructuring business but then struggled to integrate the team that successfully led its charge.
The contrast started at the top. A legendary M&A banker, Perella was previously vice chairman at Morgan Stanley and co-founded a previous boutique with Bruce Wasserstein. Weinberg had been chief executive officer of Goldman Sachs Group Inc.’s international division. Kramer, on the other hand, cut his teeth at Houlihan Lokey, a once-mid-market bank that became a restructuring powerhouse.
“I was told I could never work on Wall Street coming from the college that I came from,” Kramer, a California State University, Northridge, graduate, said on the stand. “I was told that I would never be promoted from an analyst to an associate.”
Though M&A work has long enjoyed prestige on Wall Street, restructuring has its roots in smaller shops which didn’t historically compete with the biggest banks for talent. But as more US companies began taking on greater debt in the 1990s, the growth and sophistication of restructuring work began attracting new entrants.
Perella Weinberg was among a raft of boutique banks that started moving into the restructuring space in the 2000s, a group that also included Greenhill & Co. and Moelis & Co. Perella and Weinberg turned to Kramer for their move, acquiring the firm he had founded, Kramer Capital, in 2006. The timing proved prescient, with the following year’s financial crisis setting off a restructuring boom.
Both sides acknowledge the group was a major success from an economic standpoint. But at the heart of Kramer’s grievance is his belief that, though revenue from restructuring work was shared across Perella Weinberg during lean years for M&A, the favor wasn’t returned when the economy improved, leaving restructuring bankers feeling undervalued and underpaid.
“That was a bit of the frustration because of the countercyclicality to it,” he said on the stand.
Partly to rectify that, Kramer sought out and was given a broader leadership role at Perella Weinberg. He also said on the stand that he had many ideas for increasing the bank’s revenue across the board. But Perella Weinberg claims Kramer’s stint in management was a disaster because he was disruptive, often spoke without thinking and clashed with other partners.
Derron Slonecker, a Ducera partner who worked with Kramer at Houlihan and joined Perella Weinberg with him, testified that the restructuring partners approached business differently from their M&A counterparts. Noting that they had previously achieved success as a small, no-name firm, he said they possessed an entrepreneurial drive that other Perella Weinberg bankers seemed to lack.
“They hadn’t grown up the way we grew up,” Slonecker said. “Most of the people at Perella Weinberg came from Goldman Sachs and Morgan Stanley.”
By late 2014, Kramer had been removed from a number of management roles. “The conclusion reached was that Mike cannot manage the broad group of investment bankers and he should stick to what he’s great at which is managing the restructuring group,” Perella testified.
He said he understood why Kramer wasn’t happy about that, but he and Weinberg undertook a series of meetings to try to convince him that he was a valued partner as head of the restructuring group. But the unhappiness of Kramer and his team deepened in response to his perceived sidelining, several of them testified.
In February 2015, one member of the restructuring team told Weinberg that Kramer held a meeting in his New Canaan, Connecticut, home the previous month to discuss leaving the firm together. Kramer and the Ducera partners deny there was any purpose to the meeting other than to hold a “gripe session,” but Perella Weinberg decided to terminate Kramer and three other bankers for cause.
On the stand, Perella said he felt betrayed by Kramer and his team. “To this day it puzzles me as to why they engaged in that kind of behavior,” he said.
Justice Robert Reed is overseeing the trial without a jury. He’s not expected to issue a decision for several months.
(Adds timing of trial in second paragraph)
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