Jefferies: 'Mini' Berkshire or 'Bizzaro' Buffett?

If managing an investment bank is hard enough, how will Handler maintain his strong stewardship of Jefferies - the firm survived the financial crisis without a bailout - while also managing Leucadia's disparate set of operations?

To Handler's credit, Jefferies partnership with Leucadia deal culminates a remarkable turnaround for the investment bank from where it stood at this time last year. In the wake of late Oct. 2011 collapse of brokerage MF Global as the debt crisis in Europe escalated, some investors and independent rating agencies were all but ready to write Jefferies off.

Meanwhile, under Handler's leadership, the bank has been one of the fastest growing businesses on Wall Street through the crisis. Bloomberg reports that Jefferies has boosted headcount by over 60% in recent years, as it grows operations to resemble the likes of Goldman Sachs (GS) and Morgan Stanley.

Leucadia's Steinberg will become the chairman of the merged conglomerate, likely a benefit for Handler. Still, analysts and banking insiders have big questions.

Peter Hall, a partner at investment banking boutique The Valence Group highlights running an investment bank and a holding company could stretch Handler's talents. Meanwhile, he raises the question of whether Leucadia's stock will be attractive as bonus compensation for investment bankers, who might want to see a direct payoff from their Wall Street efforts.

Sachin Shah, a special situations strategist for Tullet Prebon questions whether there is any synergy to the merger of Jefferies and Leucadia National, as both companies stressed on an analyst call.

"From my perspective, they weren't able to quantify the synergies," says Shah, after participating in the call. He sees the merger as evidence of the challenges surrounding the investment banking industry, amid regulatory reform and an uncertain global economic outlook. "No one really knows what is going to happen in the industry in the next 12 months," adds Shah.

KBW analyst Joel Jeffrey called the deal 'defensive' in a note to clients and highlighted that while Leucadia's support and NOL's are likely to bolster Jefferies' balance sheet, the firm is unlikely to grow assets far beyond present levels, in fear of new regulatory scrutiny.

"[Management] will continue to focus on keeping total assets below $50 bil. to prevent qualifying for a potential regulation as a non-bank financial SIFI. With the combined assets of the firm at $42 bil., we believe that significant balance sheet growth is unlikely," writes Jeffrey.

As CEO Handler takes the reins of what's likely to be a stabilized investment bank and a corporate conglomerate, Wall Street might do better to dwell on whether he can perform like the next Buffett, rather than whether Leucadia continues to be a 'Baby Berkshire.'

-- Written by Antoine Gara in New York

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