A Former Wall Street Titan’s New-Age Investment Bank Is Flailing

Exos Financial was meant to be a big return to Wall Street for Brady Dougan, the ex-CEO of Credit Suisse. But five years after its launch, the company has already missed payroll and is scrambling to find its way in difficult markets.

By Emily Mason, Forbes Staff

On the morning of Friday, January 13, employees at Exos Financial woke up to discover their bank accounts were missing most of their expected payday deposit. Some had received small checks for only a fraction of what they were owed. At 10:30 am that day during a company-wide meeting over Zoom, chief executive officer Brady Dougan informed roughly 50 staff members that the company would not make payroll, former employees say.

The next month, the company laid off at least a dozen people. Those fired were given one week’s notice with no severance pay or benefits, a former employee says. In addition to downsizing its staff, the company is now shrinking its business, say sources familiar with the company’s plans. Nearly six months later, staffers have yet to receive the full balance for the January period, though the regular paychecks have resumed.

Launched in 2018, Midtown Manhattan’s Exos Financial is the creation of Dougan, one of Wall Street’s most successful investment bankers, earning hundreds of millions over his 25-year career at Credit Suisse. Exos was supposed to be Dougan’s entrepreneurial second act, a new age investment bank–or as a December 2022 press description puts it, “a B2B fintech company building a modern institutional finance platform designed to deliver all the services of a traditional investment bank, reimagined and tailored to a modern digital world driven by data and data science.” According to one insider, Dougan, 63, believes that his new digital first bank will one day challenge incumbents like Goldman Sachs.

In 2020 and 2021, Exos had the wind at its back. Despite the pandemic, the stock market and anything tech related was booming as the Federal Reserve’s easy money policy was providing ample fuel for even the most speculative venture. Exos seemed full of potential and by mid-2021 it had raised as much as an estimated $175 million, about $80 million of which came from its founding partners. Almost immediately Exos jumped into the SPAC boom, participating in numerous initial public offerings via these blind pool acquisition vehicles, according to SPACInsider.

But over the past year, while interest rates jolted upward and the IPO market ground to a halt, it has struggled to build a sustainable business. Its two SPAC-focused exchange-traded investment funds (ETFs) have fizzled, with one shutting down and the other attracting just $8 million in assets under management. Meanwhile, its scattershot strategy of experimenting with many lines of business and acquisitions–including construction lending, a merger and acquisitions advisory business, fixed-income trading, crypto mining and asset management–isn’t producing enough to reliably cover obligations like payroll.

Forbes spoke with numerous people close to the company for this story, including several current and former Exos employees. The company declined to make Brady Dougan available for an interview or comment on emailed questions.

Raised in suburban Chicago, Dougan started his career as an equities trader. He rose to become CEO of global banking powerhouse Credit Suisse in 2007, just before the financial crisis, and held the post for 8 years, earning himself a reputation as one of the few chief executives in banking to serve all through the crisis. He was applauded for acting quickly in responding to increased regulatory demands and helping the bank survive the credit crisis in better shape than some competitors. During that period, Credit Suisse’s stock fell about 60%, roughly in line with the drops seen at competitors UBS and Barclays
MS
. Credit Suisse’s return on equity, an important profitability metric for investment banks, was 4.25%, compared with 14.2% for Goldman Sachs, 5.3% for Morgan Stanley, 4.43% for Barclays and -5.4% for close competitor UBS.

In 2014, the year before Dougan’s last as CEO, the company agreed to pay $2.6 billion to the Justice Department for helping U.S. clients evade taxes, the highest payment ever for a criminal tax case at the time. “We deeply regret the past misconduct that led to this settlement,” Dougan said in a statement at the time of the announcement. Dougan personally pulled in roughly $120 million, excluding bonuses, in compensation made up of stock and cash while he was chief executive, according to regulatory filings.

The market for special purpose acquisition corporations (SPACs) has gone from sizzling hot when Exos entered to frigid winter.

Like many other Wall Street veterans who departed to form highly successful boutique firms, Dougan’s Exos had all the potential to be the former Credit Suisse CEO’s swan song. He initially began contemplating the idea for a boutique Wall Street advisory firm in 2016, according to the Wall Street Journal, and had even lined up as much as $3 billion in funding from sovereign wealth funds whose commitments later evaporated. By 2018, his plan had morphed to focus on securities trading and building software tools both for Exos’ own operations and to license to other shops.

Exos cast a wide net opening business lines in investment banking, technology incubation, crypto mining and ETF sponsorships. It focused on smaller companies normally overlooked by bigger banks, with the idea that Exos would be able to build relationships and scale up to win more lucrative advising deals like initial public offerings once the stock markets recover. Most of its new offerings have yet to bear significant fruit but some of this is timing.

For example, in 2019, Exos began a cryptocurrency mining operation in North America focused on mining Bitcoin
BTC
, Z-Cash, Zen and Dash
DASH
tokens. In 2021, it identified Paraguay as a desirable destination for crypto mining since the country provided access to renewable hydro-electric power and imposed low taxes on mining machine imports. Exos even applied for a $12 million loan from decentralized finance marketplace MakerDAO to buy 3,000 mining machines, which was denied. Last year was a brutal year for crypto mining operations as higher costs of capital and falling bitcoin prices turned many of these ventures into money losers.

Likewise the market for special purpose acquisition corporations (SPACs) has gone from sizzling hot when Exos entered to frigid winter. One of Exos’ advisory clients was Alpha Healthcare Acquisition Corp, a SPAC that merged with Humacyte, a biotechnology firm cofounded by Dougan’s wife, Dr. Laura Niklason, and a company that Dougan still retains a $59 million stake in. Humacyte is in late stage clinical trials for bioengineered human tissues and organs that could be used to repair patients with vascular trauma. Humacyte’s stock has fallen to $3.39 from its IPO price of $10 in late 2020.

Exos has also launched two SPAC ETFs in partnership with asset manager Morgan Creek in January 2021 and July 2020, but both have flopped. In August 2022, the Morgan Creek-Exos SPAC Originated ETF (SPXZ) was liquidated. The other one, Morgan Creek-Exos Active SPAC Arbitrage ETF (CSH), has only $8 million in assets under management. Since 2021, SPAC deal volume has shrunk by about 98%, according to SPACInsider, as rising inflation and interest rates have made investors nervous, causing them to pull their funding, and regulators have increased scrutiny.

Artificial intelligence has been another area of investment for Exos. Four years ago, Exos incubated a startup called Claira, which uses artificial intelligence to quickly interpret legal contracts. The early stage startup has since spun out into its own company–it has about 20 employees today, according to LinkedIn. In June 2022, through its technology ventures arm, Exos acquired a company leveraging AI in asset management called Pluribus Labs. Exos has also built a product for small business lending called Reveal and a portfolio optimization tool dubbed Loan Hunter it hopes to license externally. It’s unclear today if any of Exos’ siloed business lines and early-stage investments have had any real traction.

Even before Exos’ recent missed payroll, employee turnover has been high and staff morale low, say current and former employees. Since 2018, three different people have served as head of operations. Last June, Chief Financial Officer Jason Hauf abandoned Exos for financial technology firm and brokerage BGC partners. Employees learned of Hauf’s departure from BGC’s announcement on his last day in office, two former employees say.

Earlier this week, Dougan’s former employer Credit Suisse met a distressed end to its existence as an independent company—it was acquired for just $3.2 billion by competitor UBS amid concerns that losses at Credit Suisse would exacerbate turmoil in the global banking system. Now Exos has a steep climb ahead as it faces a challenging environment for advisory deals and startup funding. Dougan is no stranger to navigating tough markets, but he no longer has the backing of an established brand and the era of easy money deals and consistently buoyant markets may be in the rearview mirror. Stay tuned.

MORE FROM FORBES

MORE FROM FORBESMeet ‘Heina’ Chen, The Secretive Executive Holding The Purse Strings At BinanceBy John HyattMORE FROM FORBESInside The Startup Whose Technology Promises An American Energy TransformationBy Amy FeldmanMORE FROM FORBESWhat High Inflation Will Do To Your Bonds And Your Bank StocksBy William BaldwinMORE FROM FORBESCalifornia’s $100 Billion Electric Bullet Train Will Be Fully Solar PoweredBy Alan OhnsmanMORE FROM FORBESMadison Avenue Takes On CapitalismBy Seth Matlins