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EPISODE 239

Howard Lutnick’s Cantor Fitzgerald: The Biggest “Little Guy” on Wall Street

59 minutes · June 7, 2021

Howard Lutnick, Chairman and CEO of Cantor Fitzgerald and BGC Partners, leads with a simple mantra: “#1 or N/A”. He wants his firm to either be the top in what it does, or steer clear, then builds a best-in-class offering to solve it. Over the arc of his career, which has spanned well beyond mercurial swings of the markets, he transformed an iconic brokerage shop into a multi-faceted financial services empire. He shares his thoughts on SPACs, monetary policy, and leading the “biggest little guy” on Wall Street.

Speaker 1 (00:03):

From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership, and vision in global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange. (Silence)

Josh King (00:46):

"This isn't your father's market." So declared a Forbes article a couple months ago as stock indexes crested to new heights. You can go back and find a similar piece written just about every year, from the first financial news coverage in the early 1800s to today. And while nothing happens the same way twice and there are always new hurdles to cross, unexpected turbulence along the way, the markets have shown the resilience to persevere through the centuries, despite an ever changing world. The article in question focused on investors around my age. Their father's generation entered the workforce when interest rates were about 20% and stock trading was measured in weeks, not microseconds. But even today's youngest investors, trading on a custodial account, perhaps with the Robinhood app, under the watchful eye of their parents, are operating in a brand new market.

Josh King (01:42):

The companies coming to market today, the amount of capital, the types of securities that can be bought or sold, and even the technology connecting it together is changing all the time. Here at ICE, we've embraced this pressure and used it to constantly innovate what we do and how we do it. The entire trading ecosystem has been evolving alongside us to meet the demands for the modern financial world. The bullworks through this period have been the firms that have found the best mixture to combine the knowhow of decades of experience with the fearlessness to embrace change and take risk. Continued success requires someone be as resilient as the market itself.

Josh King (02:23):

Our guest today, Howard Lutnick, has shown that characteristic sometimes in the most challenging of spotlights. As CEO of Cantor Fitzgerald, he transformed one of the street's iconic brokerage shops into a competitive, multifaceted financial services firm with clients across the globe. Along the way, he was faced with a tragedy that went beyond anything that being a successful businessman could prepare you for when Cantor Fitzgerald came to epitomize the horrific events of 9/11 for the financial community. The firm lost 2/3 of its New York workforce that day, but in an incredible display of strength, the CEO and its employees brought the firm's trading back online, saving the company in the process and supporting the survivors of those who perished. Our conversation with Howard Lutnick on his career, his perspective on markets, and the role that philanthropy pays in his life. Our conversation with Howard Lutnick is coming up right after this.

Speaker 1 (03:26):

Historical data can offer insight into the direction of markets. Yet data processing, collection, and storage can be challenging and costly. To simplify your data access needs and help find efficiencies, we launched ICE DataVault, a cloud based platform that enables you to access tick history for global exchanges as well as our proprietary data, sourced from our realtime feed. Fact test your trading strategies to assess performance and viability. Conduct transaction cost analysis and support compliance requirements. Input data into surveillance systems to help detect and prevent abusive or illegal trading activities. Access over 10 years of deep tick history across asset classes. Get tick data for an entire market or on an underlying list of instruments. Access additional securities as needed with flexible delivery options to compliment your workflow. Simplify your historical data management with ICE DataVault. (Silence)

Josh King (04:35):

Our guest today, Howard Lutnick, is chairman and CEO of Cantor Fitzgerald, one of the world's leading financial services firms, as well as chairman and CEO of BGC Partners, a leading global brokerage and financial technology company. Welcome, Howard, Inside the ICE House.

Howard Lutnick (04:53):

Nice to see you.

Josh King (04:54):

So, Howard, in 1945, Bernard G. Cantor created a bond brokerage firm, joined 10 years later by John Fitzgerald, that would serve Wall Street's fixed income interdealer community. Can you tell us a little bit about the mission of these two founders and what they set out to accomplish?

Howard Lutnick (05:10):

So the International Herald Tribune had an article in 1945 that Bernie Cantor put a quote in. And he said he planned to use the technology that... was really developed during World War II and bring that technology to Wall Street. So that was his mission in 1945, which is amazing because if you think about the way the company has evolved and his role in it, he really did keep to that mission, continuously evolving using technology to fundamentally change the way business was done. And we try to keep that birthright going.

Josh King (05:49):

What was some of that technology coming out of World War II?

Howard Lutnick (05:53):

So what Bernie Cantor did is he had his company lay cable throughout New York and Intel at the time wasn't making chips, it was making tubes. And so the installed in their clients' cables and tubes and they had a two dimensional screen. And that was really exciting and was called the Speed Screen because you could actually see the quotation and not just have to listen to it on the phone. Before that, there were ticker tapes and people would yell it out loud, and Bernie Cantor came up with this two dimensional screen and created something called screen brokerage. Now you're thinking, "Oh, that's silly." But remember, all these things start somewhere. And actually screen brokerage started in the world of fixed income and Bernie Cantor's mind.

Josh King (06:45):

I mean, in those early days, Cantor Fitzgerald was known for the indispensable advice it offered to institutional investors and even really those in the Hollywood community. The company became a key player in the bond market. It's been a long time since Cantor and Fitzgerald teamed up as World War II was coming to an end. Paint a picture for us of the firm and its customers today, now 70 years on.

Howard Lutnick (07:09):

I guess the best way to think about it is it's the biggest little guy in the financial service market. Now there's the JP Morgan and Citi Group and Goldman Sachs. They're the sort of the giant players who seek to be everything to everyone. And then you have Cantor Fitzgerald who believes in a very particular motto, which is A or N/A. Be the greatest in the world or you just don't do it. And so you'll see our franchises are extraordinary in the things that we do, but we don't try to do everything to everyone.

Howard Lutnick (07:43):

So Cantor Fitzgerald trades the best place to trade blocks of stock. And you say, "What does that mean?" Well, if you want to sell 100 shares, you sell it electronically. But what if you really wanted to sell 2.5 million shares of a company stock that only trades 100,000 a day? You need someone to protect you. You can just put on the New York Stock Exchange's floor... "I have 2.5 million shares for something," because then the stock will go down. So lots of people chop them up and put them in algos and machines. But what if you wanted to sell it now? And that's when you'd call Cantor Fitzgerald and use your trusted advisor to find the other side of that transaction. Since everybody uses Cantor to do that, it's a fun way to sell blocks of stock, fun way to sell blocks of bonds. Fun meaning you get the benefit of the bargain. Everybody's on your side, but everybody's on the buyer's side, too. You're going to get a fair price in the middle. That's basically the way you're going to think about it.

Howard Lutnick (08:44):

And so we do that in stocks, we do that in bonds. We have a great healthcare franchise because we help not the world's largest biotech companies and biopharma companies, but the ones that are on the smaller side. Let's say less than $5 billion in value. That's where we live and breathe. And we're great at that. We're great at SPACs. We've been the best in SPACs since 2015, when most people had never heard of SPACs. Now, you read in the paper every day about SPACs, but we were #1 in SPACs in 2015, '16, '17, '18, '19.

Howard Lutnick (09:22):

But what are we not the best at? We're not the best at SPACs that raise $2 billion or $4 billion and hunt for companies that are $20 billion. Again, that's for the big banks. We do this thing called at the money offering where we're the best in the world. And these are the kinds of things that we do and you'd say, "Well, what does that..." Remember Tesla a couple of week ago? Raised money using an electronic system to sell? And what they do is if you think about it, instead of a company announcing they want to do a secondary and raise an enormous amount of money. And then say, I want to raise $5 billion. And so if Tesla had said, "I want to raise $5 billion," their stock would go down 3-5%. Instead, what they do is they sell 100 shares, just a penny cheap. And some machine gobbles it up and they do that with computers all day, every day. And within a couple of days, they've sold 5 billion and it cost them a couple of cents. So Cantor Fitzgerald has been the dominant player in that space for as long as you can recall.

Howard Lutnick (10:26):

So you seem to be there before everybody else. And the answer is... we're a $3 billion company on Wall Street and JP Morgan's a $250 trillion. So we pick our spots really smart, really focused. Extraordinary distribution value to clients, but we pick our spots.

Josh King (10:50):

Talking about picking your spots, Howard. If I've got my history right, you picked your spot joining the company right out of Haverford College. And as a guy whose got a brother who went to Haverford and me coming from Swarthmore, Wall Street didn't have a direct path to the Quaker Triangle. What lured you to the world of finance?

Howard Lutnick (11:07):

So for people who don't know these schools, Haverford and Swarthmore are the best small schools in the country. But really small. I mean, Haverford's probably the size of most people's high school. Right? I graduated with 300 people. And you're like, "Wow. 300 people graduating." I mean, that's like a dorm where my kids go to school. You know what I mean? That's not the same.

Howard Lutnick (11:32):

So I went to Haverford College because my father was a professor of history. And I was a tennis player, a Division III tennis player which means I was really good in my country club, but let's not overdo it. I wasn't wearing tennis clothes when I graduated college. That was not going to happen. But I was ranked and let's call it in the 40s in New York, New Jersey, and Connecticut. Solid for DIII, but there's always someone out there who was going to kick my butt. And Haverford wrote me a note because I had really good grades and I was a reasonably good tennis player for DIII. And they recruited me to a teeny school in Pennsylvania. So of course, I threw out the letter because why would I do that? And then I would string my own tennis rackets at the time because it was economically much cheaper to do. Buy your own strings and string your own rackets. And so I needed a note to remind myself to string my rackets, so I went in the garbage can, I took out this letter. I wrote on the back of it, "String your racket."

Howard Lutnick (12:34):

And then my father came home and he saw this ecru, that sort of yellowish, fancy stationary that said, "String your racket." He turned it over, he saw it was a recruiting letter from Haverford College and that's how I went to Haverford College. My father knew what Haverford was and I said to my dad, "Well, who's ever heard of Haverford College?" And my father said, a professor of history says, "People who know know Haverford." So that's how I ended up at small Haverford College.

Josh King (13:03):

Where was your dad a prof?

Howard Lutnick (13:05):

Queens College. City University of New York, American History. Colonial American History and he wrote a book on how the British press... Talk about fake news, right? How the British press reported on the American Revolution. Basically, they're winning the war until they lose.

Josh King (13:24):

So he's at Queens College. You're down in singles and doubles in the Middle Atlantic Conference and you've got the world in front of you, Howard. What brings you back to Wall Street, basically? Out of a place where, frankly, Swarthmore, Haverford, Burnmore, they're not sending a lot of people to Wall Street.

Howard Lutnick (13:41):

So I lost my mom in 11th grade to Long Island breast cancer. And it was like sort of a heat map of that, must be something in the water. It was something, but it was one of the great heat maps of America for that kind of cancer. And my father was diagnosed with cancer the summer just before I went to Haverford. But he didn't tell me he was diagnosed with cancer. I went to Haverford and one week later, my father started his chemotherapy treatment. He went to Syosset Hospital on Long Island. And got his first dose of chemotherapy and the nurse made his stay, gave him 100 times the dose and killed him. And so, I was at Haverford for a week and when you lose one parent, that's one thing. But when you lose the second parent, it's just a whole nother thing.

Howard Lutnick (14:28):

My extended family, sadly, they pulled out. I couldn't imagine that as I sit here today because if something happened to one of my family members, my sister or my brother... I mean, you'd want to [inaudible 00:14:40] like in a way, but they were just afraid we'd be sticky. Here you have my brother's 15, I'm 18, my sister's 20 and my uncle at the time says, at my father's funeral which was September 15th. By the way, he was killed September 12th. So not a good time of year for me, generally. It's a good time to stick away from me. But at my father's funeral on September 15th, they asked me what I was doing for Thanksgiving. And I said, "Well, isn't that like in November? Aren't you worried about how I'm going to eat tonight?" And he was like, "No, I just want to know if you want to come over for Thanksgiving." And we never really spoke after that.

Howard Lutnick (15:18):

So it was really me, my sister, and my brother. And so what ended up happening is my... we put my brother in boarding school right near Haverford, in Allentown, Pennsylvania. And then he would stay with me on the weekends. And then the next year, my sister graduated college and we moved up with her. She went to Syracuse Law School and Business School. She got an MBAJD. An underperformer, my sister. [inaudible 00:15:44] And he moved in with her and he went to his last year of public school in Syracuse.

Howard Lutnick (15:53):

So what happened at Haverford to me was... So I dropped out. I dropped out of Haverford. I wrote them a letter saying like, "I can't come back. Let me take care of my brother." And they called me about three weeks later and said... Remember, I'd only been there a week. And they said, "No, no, no. We don't want you to drop out. Come back and we will find a way to pay for your education. Just come back." And I decided to go live the life that my father wanted me to have. So I went back to school. And so I love Haverford College because they were actually, strangely... they were the family that stepped up for me.

Howard Lutnick (16:35):

And so if you go to Haverford College, which your family will do, or Burnmore, which is right next door, you'll see the reason that there are so many things there that I've supported. It's because they deserve the support from me because they earned it when I was a freshman for a week. And the way I describe it is they weren't saying, "Oh, this guy, Howard. He's going to be great." I mean, with all due respect, if you knew me as a freshman for a week, you wouldn't have thought I was going to be so great. But it was about that... they were the kind of people who stepped up when someone needed it. And so I think they deserve my gratitude decades and decades later.

Howard Lutnick (17:17):

And so here I was, a senior at Haverford, with really no connections, no anything and a great family friend said, "You should meet Bernie Cantor." And he invited me over to his house and he introduced me to Bernie Cantor. And at the end of that meal, which was a very stressful meal. Not because of the reasons you'd think, it's because my friend served spaghetti. And I'm like a senior and I'm wearing like a white shirt and stuff. And I'm trying to eat spaghetti.

Josh King (17:52):

Bad news.

Howard Lutnick (17:53):

And there's no chance it's not getting all over me. But it was like the most stressful meal because I thought, "Oh my gosh, I'm going to definitely spill this all over myself and I'm going to look like a fool." But I ended up with a clean shirt, which was the reason for my stress, and ultimately got a job at Cantor Fitzgerald. And so I've never had another job, so this was my first and only job. A family friend introduced me to Bernie Cantor and that's how I went to Wall Street.

Josh King (18:20):

So seven years out of Haverford, I think if I've got my math right, at the at age of 29, you're appointed Chief Operating Officer of Cantor and by the next year, President. It's the end of the George H. W. Bush years, the beginning of the Clinton era. What was New York like and how did you see the opportunity to affect change as the economy under the Bush years was beginning to turn a corner into the '90s?

Howard Lutnick (18:44):

When I look back, I entered the workplace in 1983, in the greatest moment in time to go, right? Tax rates came smashing down. The economy came smashing up. And it really was a great year. Interest rates were high and they came down, as you said. I remember 12% short-term rates. But as they came down, yeah, just tremendous growth and tremendous opportunity. And I rose quickly through the firm the best way to grow quickly through a firm. I made the boss so much money that he liked me and he really liked me. Then, a couple of years in 1986 and 1988, I made him so much money that it became love. If I made you as much money as I made him, you'd love me, too. It's not that hard to say. So someone says, "Well, how do you become the president of the company and you're 29?" And the answer is if you make the boss enough money, right? That's how you become the president at 29.

Josh King (19:57):

I mean, an essential component of Cantor's business model when you were first starting out was its eSpeed operations. You mentioned it in an earlier part of our conversation, this critical link to treasury markets. It was launched in 1996, it was a revolutionary system that provided the government bond market with this fully electronic trading system. Now, bond markets have been slower in their moving to digital, but there's been a lot of progress in the past year, certainly here at the fixed income and data services segment of ICE. Why do you think that the electronification and automation of fixed income markets has lagged in the past? And why is it so crucial for the future?

Howard Lutnick (20:37):

[inaudible 00:20:37] So you remember Bernie Cantor? He invented this two dimensional screen system and one of the things that I drove was this speed system, which was just this screen, this two dimensional screen, becoming eSpeed. And that's why I called it that, so you could electronically trade right on it. And what happened is in the bond markets, there are a million municipal bonds. In corporate bonds, there's a hundred thousand. Whereas in stocks, there's about 5,000. Each share of IBM is the same as each other share of IBM. Whereas each municipal bond, oh my gosh. Or each corporate bond, oh my God, there's tons of those. So... fixed income markets became what I would say, they go electronic in a barbell. The most commodity like ones, which we developed electronically first, US Treasuries, right? They issue billions of them. Now tens of billions at a clip, right? Of the same bonds. So that's something easy to trade and it trades just like stocks. So electronically, it can trade just like stocks.

Howard Lutnick (21:39):

And then, you would think the other thing we came up with is a way to electronically trade that which is really illiquid. And think of it like an auction, right? It never trades, this stuff never trades. So how do they auction like a piece of art that never trades, right? The person puts the art up for sale, some famous piece of art, and then the auction house publishes it and tries to create a whole drumbeat of interest and gets everyone to pay attention like at 8:30 on Tuesday night. But otherwise, it could never trade. It's a pain in the tail to trade it.

Howard Lutnick (22:15):

So that's what we did. We created these matching systems. And so the less liquid ones, we would make a big thing. Say this is going to trade this day, this is going to trade this day, this is going to trade this way. And so we ended up having a barbell. The most liquid electronic and the most illiquid and that was electronic. You can only participate in these auctions, because, gosh, there was so many of them, electronically. And in between, what you had was professionals who you could talk to and say, "Hey, find me something like this." And if they couldn't find the IBM bond, maybe they found you the Ford bond. You found Coca-Cola. You know what I mean? What are you looking for? You looking for consumer? You looking for auto? And there are so many things that are similar that, in the world of credit, a person could help you.

Howard Lutnick (23:06):

And now you fast forward to today, more and more are going to be on computers. Why? Because we know their computers can do more and more of these things. 15 years ago, not so much. So it wasn't really that they were slow to evolve, it was that computers were not capable of that type of analysis. And you would say, "Yeah, now they are." And the answer is oh, I totally agree with you.

Josh King (23:32):

In 2004, you made this big decision to separate the voice brokerage business from Cantor Fitzgerald and form BGC partners. Walk us through your thinking at the time and why you thought it was important to refocus these different businesses.

Howard Lutnick (23:46):

Well... and I'm sure we'll get to it, but the events of 9/11 sort of changed the outcome of the company. So basically Cantor Fitzgerald had in it two big businesses. It had taking care of institutions and the big stock block trading and big bond trading, right? We had that business. And we also had the world's largest wholesale financial service business. So basically, when JP Morgan or Goldman Sachs or Morgan Stanley or Bank of America, all the names. You think about it, individual investor gives Fidelity money. Fidelity wakes up in the morning, wants to sell something, they call a big bank. Who's the big bank call? They must call somebody. Remember the person that works at Goldman Sachs was sleeping, holding his pillow, woke up in the morning, went to work, and Fidelity said, "I'd like to buy X, Y, Z." What does that person do? They call the wholesaler and that's what we are.

Howard Lutnick (24:45):

So at the time of 9/11, we were the world's largest wholesaler. And we had Goldman Sachs and Morgan Stanley, I mean every single one of them on speed dial. We're everywhere. People would ask me what I did for a living and I said, "In the wholesale market, I follow JP Morgan like a puppy." Like whatever they want to do, we follow them and we take care of it. We're with them, we're the best friend, but they decide what to buy and sell, we help them find it with who? With Deutsche Bank and Nomura and [inaudible 00:25:17]... We connect all the banks in the world to each other and that's the wholesale market.

Howard Lutnick (25:21):

And so after 9/11, I had these two business but the problem was the company had been shattered. We were located on the top of the World Trade Center and the company had been shattered. And so whereas before, we were a happy boardroom of partners, because we were a partnership. And I'd come in and say, "Okay, where should we invest next?" And since we all owned each other, it was sort of friendly. But now when they destroy your house and they destroy your best friend's neighbor's house and I walk in with enough money to buy one house, it's war. Because it's not about congeniality anymore. It's about survival. And so I had to split the companies up.

Howard Lutnick (26:07):

Now, Cantor Fitzgerald was such a successful company before 9/11 that we had no debt. None. We didn't have any raided... Like we weren't raided, we had no debt. When you're a successful company and you make a lot of money, you actually don't need to borrow money from somebody if you're in our business because remember, we're not big betters on Wall Street. The big banks make big bets. We don't make big bets. We help other clients do what they need to do. And so what ended up happening is we needed to separate the two. And for the first time in my professional life, I borrowed money on every single thing that I owned. Towards my house. Everything I did and borrowed a huge amount of money and split the company in two. Took all the money in Cantor Fitzgerald and put it in one. And separated BGC, which is basically Bernie Cantor's initials, and created a wholesale financial service company and put all the borrowed money in that. And then I had to separate the two because it was a survival between the two companies and that way, they could thrive. And I had debt for the first time in my professional life, but it's what I needed to do to have these companies survive and thrive.

Josh King (27:23):

The current state of market data, and we'll get into [inaudible 00:27:27] later if we have time, but it was shaped by everything that you're talking about. Changes to market structure and technology following the events of 9/11. Howard, I know you've shared this story many times, but maybe if there's a different angle on it, tell us about your experience on that day and how or if your perspective on it has changed, now over 20 years.

Howard Lutnick (27:49):

Well, so just for quick background, I have four children. I was taking my oldest son to his first day of kindergarten, that's why I wasn't in the building. But every person who worked for me who was in the building was killed that day. My brother, Gary, was there. He was 36. My best friend, Doug, 39. The World Trade Center Bombing of 1993 taught us that life was short and so we made the rule at the firm, it's not a common rule, but that we want to work with people that we like. And so we encouraged everybody to hire people that they liked. And I would describe it this way to them. We all have the same rainbow of friends. Now think of your friends. The ones on the left, smart, capable, rockstar winners. You got those friends? Now the ones on the right that make you laugh at a bar, [inaudible 00:28:32] fantastic. We got the same friends? Let's just hire the ones on the left, okay? We'll just stick to the ones on the left.

Howard Lutnick (28:39):

And that was the company. So we all had our friends. Everyone. And then, on 9/11, we lost, as you said, 2/3 of our staff and that means we all lost our best friends. My college roommate's... brother. My other best friend's brother-in-law. I couldn't go to some of my friend's funerals because there were two of them on the same minute. I mean, there were... We lost 658 people. You got to realize that's 20 funerals a day every day for 35 straight days. It is pulverizing. Pulverizing. And so... we still... we embrace that model. We still only want to work with people that we like. That's, I think, the reason that we survived. I think it's the reason that the people who lived through the horrible events of September 11th who worked at Cantor Fitzgerald wanted to commit to come back to work, not to come back to work.

Howard Lutnick (29:39):

But we gave 25% of everything we made to the families of those we lost. And now that you know they were my friends and not only my friends, but everybody in the company had their friends. They all did it to take care of their friend's families. And thew way we did it was let's say we were going to hire you for $150,000. I'd say, "Gee, I can't pay $150,000. But tell you what, we'll pay you $112,500, 25% off, and I'm going to take that $37,500, we're going to send it to the families." Now, you take the job, you're committed, right? Because for five years, you're going to send them your money, effectively. And that happened for everybody in the company.

Howard Lutnick (30:20):

And then when we took BGC public in April of '08. And you're going to say, "April of '08? Who takes a company public in April of '08? Could it have been any worse?" And the answer was if you go look at that IPO, it's the strangest IPO you've ever seen because there's six pages, single space, of selling shareholders. And what that was is each one of those employees were committed and gave that money to the families, I kept track of it. And in five years, "By the way, your salary went all the way back up to what it should have been." Right? So now maybe you would have been making $200,000. Okay, fine. I kept track of every penny of that. And when we took BGC public, I gave two things. I gave you that amount of shares and at the IPO, only you sold, not the company. And you got that amount of cash. So let's say in this case, you would have given $200,000 with your raises over those five years. You would receive, on the IPO, $200,00 in cash and $200,000 in stock in BGC taken out of my share. Because the reason I was able to live my life was because my employees who joined us and rebuilt this company gave their soul.

Josh King (31:42):

I remember clearly your appearances on live network television in the aftermath of the attack. Your sense of loss was on full display. It's indelible in my head. After 9/11, there were a lot of people processing what had happened to their lives and their families and their jobs. You just talked about it. How do you think it affected and shaped the kind of leader that you are today, 20 years later?

Howard Lutnick (32:07):

So when I think back to September 10th, we had no debt, we had a totally winning company, and I didn't really want to be partners with any why. We're doing great, we're making plenty of money. And after 9/11, I just needed other people's help. And so I wanted to be partners with lots of people. And I think what's happened is my perspective on no matter how successful you become, having more partners, more friends, and more people you can do business with would be better. And so I've become much more interested in working with others. And more able to create partnerships and interesting alignments and doing business together. And that's simply a lesson... you probably couldn't have taught me.

Howard Lutnick (32:59):

The other lesson I learned long ago in '93, really. I learned the other lesson is most people's disaster recovery plans are a disaster. Because you imagine what you think the disaster is. But then you can't imagine. What we did... we had our backup computer center in New Jersey, right? But we never thought that all the people who would operate it would be gone. So I had to find people, Microsoft and Sysco flew in people for me to operate my system. Just to operate my system. And you know what we did for the first 72 hours? We broke into our own system because we didn't have any passwords. You can't plan out for things like that.

Howard Lutnick (33:51):

We survived because we wanted to take care of our friends' families. We had had the kind of businesses that you can back up and that did back up. And then we hired lots of people who committed more than work. They committed their souls at 25% to the families and that bound them together in a way that you couldn't find in an employee today. And I can't just hire someone and say, "Hey, you want to be a part of my culture?" And it was amazing. And I'm proud of BGC Partners and Cantor Fitzgerald because the people, they were just extraordinary. And uncommon.

Josh King (34:37):

Speaking of disaster recovery plans, every company of a certain size, ours included, had a pandemic response plan, probably gathering dust somewhere, not wargamed out all that often. What parallels, if any, do you see in the resilience of the financial markets and their legion of workers in the last 14 months that we've all been enduring during the COVID pandemic to what you were experiencing 20 years ago?

Howard Lutnick (35:03):

I was shocked by how extraordinary people performed. I knew we were well prepared. We had to be backed up, we had to be this, we had to be that. We're crazy that way because think of what what's happened to us and it happened in '93 and it happened in 2001. But the way the market in general performed, the way people were able to get back online and operate was amazing. And the markets in America, really the world, should be proud. What they were able to accomplish. I mean, if you said the world has to go home on Tuesday. Go. I mean, you'd think the thing would just fall over. And not only didn't it fall over, it was all right. I mean, yes, it tortured... restaurants and all sorts of people just got crushed by the fact that the normal people who would come and do business with them were gone. Which is horrible and even today, in New York City. The lack of commuters is just torturing hundreds of businesses and it's sad.

Howard Lutnick (36:13):

But the impressive way that the markets operated. And you operated, the way ICE operated, the New York Stock Exchange operated. I mean, these are amazing things that people should be incredibly proud. You hear how proud I am of the way we dealt with 9/11, but I am fundamentally amazed at how the American and how the global financial system operated. And the regulators and our politicians who take it for granted. They should not. It was heroic, it was amazing. And it should make us really proud of the financial markets in general.

Josh King (36:57):

Thank you for sharing all that. We'll take a quick break. And after that, Howard Lutnick and I will dive deeper into Howard's view of the SPAC world. He mentioned it a little bit earlier. We'll get into that in much more depth. His outlook for the markets and the role of philanthropy. And that's all coming up right after this.

Speaker 1 (37:16):

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Josh King (38:15):

Welcome back. Before the break, Howard Lutnick, the chairman and Chief Executive Officer of Cantor Fitzgerald and the chairman and CEO of BGC Partners Financial Group, and I were discussing his background, the history of the firm, and the affects on the firm from 9/11, now 20 years ago.

Josh King (38:30):

I want to switch gears now, Howard, and talk about SPACs. You mentioned it in the beginning of our conversation. By the end of March of this year, SPACs had already raised more than $90 billion in 2021 alone and it's continued to grow, albeit at a slower clip. They have attracted a lot of serious players along with a crop of celebrities, but it's been all business, as you mentioned earlier, at Cantor Fitzgerald. You've been a top underwriter of SPACs for a long time. In a recent interview, you shared that you closed more SPAC deals in 2020 than any other bank and you continued to invest in your SPAC franchise. What's driving the strategy today, given what we are seeing in terms of the current trends over the last, call it, six months?

Howard Lutnick (39:13):

Well, SPACs are a really... they're an incredible structure. So you take a company public as a SPAC and that company, the investors have a right to get their money back at $10. They have an absolutely right to get their money back at $10 if they don't like your deal. And you as the SPAC sponsor's job is go find a good deal. Something that's going to be worth more after you buy it. Otherwise, all the investors are going to say, "I want my money back." Right? So if you bought something that was worth $100 and you paid $150 for it, everyone's going to say, "I don't want that. Get my money back." Whereas if you bought something that was worth $100 and you paid $80, [inaudible 00:39:59]. So that's the challenge. As a sponsor, can you find things that the market thinks are worth more than what you paid and that's your job, okay? Whose done that always? Private equity. Right? Private equity invests in stuff that they think, "I'm buying it today because I think it's worth more."

Howard Lutnick (40:20):

So what SPACs are is they are a public wrapper for that which private equity has done for decades and that private equity investors have made a fortune on for years and years and years. And as you know, we at Cantor Fitzgerald, we only do SPACs. We have something called The Pipe, which means we won't bring a company public unless big institutional investors have agreed that they'll put in money. So that you know the market, it's not a questions of whether they will. They already have, right? They've committed to buy it and of course, we all know the idea is for it to go up, but sometimes they can go down. But the idea, of course, is to do it in unison from the IPO market of the SPAC and big institutional investors who back it. And that combination is why SPACs are here to stay.

Josh King (41:23):

Here at the NYSE, we've seen some sponsors take a step back from SPACs as they digest the SECs new guidelines on them. The treatment warrants and the like. But we're also seeing a continued stream of new SPACs come to market. Was the reset necessary? And what do you think the go forward trend is going to be for SPACs over the coming months and years?

Howard Lutnick (41:43):

Well, there were some technical changes that the SEC said, "Gee, there's a slight technical change and please change that." And it took the market six weeks to digest that, but that didn't change really anything. What had happened in the SPAC market is lots of the companies were go-go companies. EV companies, battery companies. And these companies basically said, "We're going to change the world in 2024." Okay, but not as much 2021, 2022. And we're all used to IPOs where companies are really good and they're making money today and they'll make some more money tomorrow and more money the next day. But we all know that Amazon didn't make money for a long time and then killed it. And there are so many big companies that have done incredibly well. Airbnb and Facebook.

Howard Lutnick (42:35):

So I think there's a lot of excitement about the changing world and the pandemic, I think, embraced the changing world. But the fact is these companies have raised enough money to change the world. And now they're like private equity companies, meaning whether their stock's trading at $9 or $10 or $11 today, that company raised enough money to go build its product. And let's see how they do in 2023 and 2024. So I think it's pretty exciting, but I think SPACs are here to stay. I think you'll see a pendulum of sometimes you'll see more profitable companies, more like IPO. They're like a little earlier than an IPO, but IPO like. And sometimes, you'll see these go-go companies and it just... it's really the mood of the market, like everything else. The market is it's the mood of the market.

Howard Lutnick (43:23):

But basically, it's a cool way of investing and when the press writes about it, they forget to write about... I mean, really, why would you raise $100 billion in a quarter unless it's awesome. You could say, "Well, it's not as awesome as you said. Okay. I'm sure it's not as awesome as you said." But the fact is it's an incredible financial tool and that's why the world raised $100 billion doing it in the first quarter of this year. Should there be a little pause now? I mean, you did raise $100 billion last quarter. You think you could maybe have a little slower second quarter. I don't know. Seems sort of obvious to me, but... I wish it continued! I got to tell you, I wish we did another $100 billion since last I checked, Cantor Fitzgerald is still third in the world. And I just want to point that one. Cantor Fitzgerald, who's the biggest little guy, right? Is in front of Morgan Stanley, JP Morgan, Bank of America, Deutsche Bank. You know what that means? It's really good for Cantor Fitzgerald.

Josh King (44:26):

I mean, another thing that should be really good for Cantor Fitzgerald, you mentioned it before the break, healthcare sector. It's a key area of focus for Cantor and in the past, you've brought together leaders from private and public companies to talk about the developments and trends shaping biotech, pharmaceuticals, life sciences, diagnostics, medical technology. Can you talk abut how this practice has emerged and highlight some of the recent successes that you've seen that, to your view, are going to be really good for Cantor Fitzgerald?

Howard Lutnick (44:56):

So... what's America great at? America is great at inventing and defining new ways of doing things. And drugs, we're at the absolutely pinnacle. I mean, where America is best is in bio, pharma, and biotech. Right? That's where the vaccines come from. Right? They came from here. Why? Because we were the ones working on RNA and... Our focus was on let's go pick companies that are going to do great things and help raise them cap. And I'll tell you, our conference that we have every year, I don't know that there's a day that I feel better than having come from that conference. Because I go from meeting to meeting and I'm just there to shake hands and say hello. I call myself a pretty face, but it wouldn't really work out, so I just say...

Howard Lutnick (45:55):

But to listen to these companies and what they're raising money to... and the diseases they're attacking. A friend of mine I went to Haverford with, he sets out and he sells his biotech company and he sets back up and he says, "I'm going to go attack sickle cell anemia. I don't think it gets the right amount of money." So we raise the money and we raise the more money to keep doing it. But now it's a $3, $4 billion company called Global Blood. It's on the track to solve sickle cell anemia and that's amazing. It's uplifting, but what we do is we're there early in early stage companies, we help raise them capital, and hope they become great gigantic companies that change the planet and change our lives by helping someone we love have a more successful, healthy life.

Josh King (46:44):

Given these things that you and I have been talking about, the opportunities that you see, what do you think is the greatest opportunity for investors right now? What are you most excited about that you see happening in the markets?

Howard Lutnick (46:54):

I think... we've got really, really easy monetary policy. And after they tighten, it will be the easiest monetary policy of my life. I mean, it's so easy. Like quantitative easy, right? The idea that the government buys its own debt. I mean, what does that even mean? How could that even be on the menu? Like the US Treasury is running a deficit, so it's going to issue tenure bonds and the Fed is going to buy the tenure bonds and print the money to buy it. I have no hair, so I can't scratch off my hair. But if I did scratch it, I'd say, "What's that even mean?" So that's such easy monetary policy that that has to drive economic growth. It has to drive economic growth, so people wonder why is the stock market up so high? Just remember, interest rates are virtually nothing. And if they get to 1%, you know what that is? That's virtually nothing! So easy monetary policy.

Howard Lutnick (47:54):

And then, you have the stimulus at numbers that I cannot comprehend. I don't know what 1.9 trillion of spending extra means. I can't say I really understand because it's so big and now it's already happened twice. And then the current president says he's going to do it again! And I don't know what three trillion or two trillion or an extra trillion and a half. I mean, this is so much stimulus into the world's easiest monetary policy that basically when people worry about is this party going to end, how could we be up here this high with a pandemic. And the answer is oh, it's going to continue because the government hasn't even printed the $2 trillion that President Biden wants to bring out. And if he negotiates it down to $1.5 trillion, some people will be disappointed. And I will still be amazed that the number was $1.5 trillion because before a year and half ago, I never heard such a thing. My whole life, we had never heard such a thing and now we hear it like we're already numb to it. Because ah, it's the third time to spend like more than a trillion. Wow.

Howard Lutnick (49:10):

So I think the opportunity, the market's here to change things. It's moving the internet 10 years forward. Quicker. We do Zoom casually and we all learn to Zoom on the Tuesday. Everybody used Teams from Microsoft on the same Wednesday. It's like it's unbelievable. So people know they can do things working from home. They know they can do things without traveling, right? There's never going to be another road show the way we used to do it, right? We used to get an executive on the plane and we'd fly him around. And we'd drive him around in cars and why? They can sit in one chair and see everybody more efficiently and everybody's happier. Like everybody's happier. So I think there's lots of wind in the sails and people have been cooped up for a year and they want to get out and travel. They want to drive their car, they want to go stay in a hotel, they want to go out to dinner, they want to buy clothes. And that fun is going to drive economic activity... for the future. So if you think about it this way, the last time there was a pandemic it was 1918 and we had the Roaring '20s. I think you're feeling the beginning of the Roaring '20s.

Josh King (50:35):

Talking about what the Roaring '20s will be and the things that people have been doing at home, Howard, over the past couple of months, we've seen the rise and influence of retail investors grow more than 10 million new brokerage accounts in the last year, a new record. In an interview in February, you spoke about how it's important for the market participants to watch retail investors, learn what's driving them. Tell us a little bit about this trend and why it's one people should be paying a lot more attention to.

Howard Lutnick (51:04):

Retail investors love Tesla. Retail investors love Bitcoin. Retail investors love Amazon. Which day is [inaudible 00:51:18]? Right? All that happened is GameStop was... Really? They're buying GameStop? But the answer was really? They're buying Bitcoin? What does Bitcoin have? Nothing. And now, Bitcoin's going to have... the sentence on your tax return that says, "Did you buy Bitcoin?" Hey, it's taxable. Then people are going to say, "Holy moly, I thought this was getting around that." That answer is the retail investors have better access now that ever before. Better transparency than ever before. Okay? Better access and better transparency means they can make their own decisions. And the fact that millions and millions are making their own decisions and millions and millions of young people are investing the way they think the future's going to be. It's pretty amazingly exciting, which you, ICE New York Stock Exchange, provide. So you and NASDAQ do such a great job, it's going to unleash value and that's what you've done.

Josh King (52:27):

As we wrap up this amazing conversation, one of your philanthropic legacies is the Cantor Fitzgerald Relief Fund, which was created in the wake of 9/11, and your annual Global Charity Day, where Cantor and BGC commemorate those that you lost by distributing revenues from the fund to charities across the world. In the past, you've been joined by the likes of President Clinton, President Bush, so many others. As we approach the 20th anniversary of the horrific event that all of us in Lower Manhattan share a connection to, how is Global Charity Day going to be marked this year? And where does remembrance go from here?

Howard Lutnick (53:02):

So right after September 11th, I had this gigantic issue, right? I had to rebuild the company, but I needed to touch the families. And so I asked my sister, who had just lost her brother. Remember, we lost our parents when we were young, so the loss of my brother, because I only have a brother and a sister, to lose my brother was just as crushing as could ever be. To take care of the families. To create the Cantor Fitzgerald Relief Fund and to take care of the families and that's what Edie did sort of heroically for the first five years. And that's when we gave 25% of everything we did, but someone had to touch them, someone had to be the human being. You're not just sending checks in the mail. That's trash. You have to be there, you have to love them, you have to care. And my sister did that brilliantly.

Howard Lutnick (53:54):

And then, after five years what we did is we decided together with my wife Allison, we would morph the Relief Fund to take care of those who've had crises. And those crises were Hurricane Sandy. Right? Ripping through here and we picked 19 elementary schools that suffer in ordinary times, let alone being in the wake of such a horrible event. And we went and we called the schools. And the principals, we just told them every kid in the elementary school, invite their parents to come in, and we gave them $1,000 each. Just gave them $1,000. Don't be their parent, don't tell them what to do. Just give them money and let them decide what's best for their family. And then we did that at Hurricane Harvey. And we went down to Puerto Rico and went to Moore, Oklahoma. And so what happens is we are people with a broken heart. And so we come with hundreds of volunteers. We fly down, we get one of the airlines to give us a... JetBlue has often donated a plane to us. And we fly down hundreds of volunteers and we take over a coliseum. And we just give away $1,000 to kids in elementary schools that have been pulverized by an attack.

Howard Lutnick (55:13):

And on our Charity Day, which we do on September 11th or the business day that's closest to it, we ask all our employees to waive their compensation for the day and we ask our clients to come in and just do as much business as they can. And we don't give away our profits. We give away every single penny of revenue. And that has tended to be around $11 or $12 million a year. And then we seek to give that money away the way we just described. Not with any forms or any applications. Just if you were harmed by the hurricane and you have a kid in this elementary school, here's $1,000. Someone in New York who you don't know, who's never coming back later and asking for anything. Just want you to know we care about you. We understand and feel your pain.

Josh King (56:04):

Over those 20 years, I think somewhere around $347 million given away globally. Howard, even in the wake of disaster and the enduring memory of it, there's always been a reminder that people do carry on, that there's work to be done, that opportunities are ever present. Curious, what's next for Cantor Fitzgerald, BGC Partners, and you?

Howard Lutnick (56:26):

Well, my companies are very much my children. They have their destiny. And my job is to help them reach that destiny. And I have great people who work here and I love the people who work here. They are my great friends and I have such incredible respect for them. And they have exciting times ahead of them. I'm just excited to work with the people I do. I always have new people joining and young people joining. Trainees coming and it's just... I'm addicted to people who are excited and driving forward and I love working. And my wife, she married me when I was already like this. So she's not suffering. She knew Monday through Friday, you weren't going to see me at home. But the weekends, whatever she wants to do, I do.

Howard Lutnick (57:19):

In the days when we used to go to department stores, when that was like a thing, I would go to the department store with her on Saturday because... and I would be the only guy in there, walking with his head high, not dragging because look, she doesn't see me during the week, so she should see me on the weekends. And I would do what she wanted and that was okay. That's sort of my balance in a marriage and it's worked for me and her. So we've been married 26 years and four great kids and I'm happy.

Josh King (57:50):

Well, from 1983 to 2021, not bad for a Division III tennis player from Haverford. Even said from a Swarthmore guy. Thanks so much, Howard, for joining us Inside the ICE House.

Howard Lutnick (58:01):

Thanks.

Josh King (58:02):

That's our conversation for this week. Our guest was Howard Lutnick, chairman and Chief Executive Officer of Cantor Fitzgerald and chairman and Chief Executive Officer of BGC Partners. If you liked what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, e-mail us at [email protected] Or tweet at us @ICEHousePodcast. Our show is produced by Stefan Caprille with production assistants [inaudible 00:58:31] Ash, Ken Able, and Ian Wolfe. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening, we'll talk to you next week.

Speaker 4 (58:42):

Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content of herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes and offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity. (Silence)

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Information contained in this podcast was obtained in part from publicly available sources, and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice.