Do you remember Reynolds & Co.? Or Blythe & Co.? Or Halsey Stuart?
Many a well-known name has disappeared from Wall Street during the past 10 years, swallowed up by a sounder firm whose conglomerate name today reads like a Who's Who among securities firms a decade ago: Blyth Eastman Dillon (just gobbled up itself by Paine Webber); Shearson Loeb Rhoades; Bache Halsey Stuart Shields; Dean Witter Reynolds or Drexel Burnham Lambert, to name a few.
Increasingly, the securities industry is being dominated by a handful of national securities firms who have not only gathered in their troubled Wall Street brethren but many smaller firms, as well, firms whose roots were not in Manhattan but in many communities and regions across the nation.
Despite the consolidation in the securities industry, a number of smaller, so-called regional securities firms continue to compete with major firms by carving out a special niche for themselves even though they basically provide the same types of service as the larger firms.
The Merrill Lynchs and Dean Witters have a strong presence in Washington, and the national firms have a lesser presence in Baltimore and Richmond. But a number of old-line, well-established firms in all three cities continue to survive and thrive.
Some, like Alex. Brown & Sons, are big enough to have impact on the national market, although their thrust is local.
Others, such as Wheat, First Securities Inc. in Richmond, are important both to municipal finance and to certain industries. "We're recognized as the most knowledgeable firm in the United States in the furniture industry," according to Chairman James C. Wheat Jr.
Still others -- like Washington's Johnston, Lemon & Co. Inc. and Ferris and Co. Inc. -- concentrate mainly on local companies too small to be followed by the national firms and whose financing needs are tiny enough to be uninteresting to the giant Wall Street underwriters.
But all regional firms claim their biggest offering to a customer -- be the client a business or an individual -- is the flexibility and proximity of their operations.
Securities firms today are quite different from the old image of stock brokers watching the Dow Jones ticker. Retail buying and selling of stocks for customers is just one business of the modern securities firm, along with trading in bonds and commodities at some firms; helping to raise capital for corporations by selling new stock (underwriting) or securing private investments; providing investment counseling; selling mutual funds or insurance and conducting independent research about companies, industries and governmental policies.
Some of the big national companies are moving into banking-type services. Merrill Lynch is buying local real estate companies here and elsewhere, and has expressed an interest in making loans to small businesses.E. F. Hutton is buying timberland, a vineyard and jet aircraft, in part to offer investors a piece of these businesses.
On a regional basis, the securities firms have research and trading specialties for which they are known, as well as personalized services. "If a client has a problem with something, all our operations are right here," said James H. Lemon Jr., president of Johnston, Lemon Inc. "If there's an accounting mistake, we can take care of it right away. We don't have to call New York. Everything is right here: the research department, the munipcal bond department, the stock trading department and all our technical experts in fields like Keogh plans [a specialized retirement plan for individuals]."
George M. Ferris Jr., president of Ferris & Co. Inc., said the same proximity that aids the client also helps the broker (which securities firms now call account executives or investment executives because they offer more services than just buying or selling stocks and bonds).
"I just had two employes of a major firm join me," Ferris said. "Why? Because one of them had a client who needed expertise in a particular area. The client would have had to go to New York to consult with the specialist. Our expert gets in his car and drives to the office where a client needs help."
"It is the local management aspect that is important," said Raymond A. Mason, chairman of Legg Mason Wood Walker Inc. of Baltimore. "Clients do not hesitate to call me. Believe me, they don't hesitate. I think they probably would hesitate to call Don Regan [chairman of Merrill Lynch & Co., the country's biggest securities firm]."
Legg Mason is the only one of the area's three largest firms that is primarily a retail broker. Nearly 85 percent of its income is from retail brokerage. Wheat, First and Alex. Brown run large brokerage operations but also concentrate on investment banking -- or acting as an intermediary between the investing public and a company that wants to sell stocks or bonds.
Indeed, it is the investment banking function that many brokers say sets regional firms apart from the national firms -- called "wire houses" in industry parlance, because of the intricate network of telephone lines that links the main office with the branches.
"Look, the local brokers may be better known in their areas than I am, but I don't believe for a minute that the average retail customer is any better served by a local firm than a wire house," said a top official of a major national firm. "But they do keep track of the smaller companies in their areas, do the research that we don't do and provide sound financial advice."
Until recently, securities firms -- whether they are big or small -- have not been active in selling new stock to the public. Because the stock market was depressed, few small growth firms -- the type of company that relies on regional securities firms to "bring them public" -- were looking to the public to supply them with new capital.
But in the past year or so, the stock market has picked up and so has the number of small companies going public.
Ferris has beefed up its corporate finance staff. So has Johnston, Lemon, which is in the midst of a major corporate overhaul. One of the major changes was a near-total facelift of the underwriting department.
"We stick close to the corporations in our area, underwrite their offerings and make markets in their stock," according to Norman Farquhar, who heads up the Washington operations of Alex. Brown.
At some point, local companies get too big for the regional securities firms. "We could probably manage a deal for $10 million," Lemon said. "But at $100 million the company would have to go to New York."
Ferris, who thinks well-managed local firms are often better equipped to serve customers and have many operating advantages as well, said one of the disadvantages of being a regional broker is the inability "to point to a national distribution when trying to attract corporate finance business."
Lemon points to a number of large local companies that Johnston, Lemon brought public that outgrew Washington brokers: Marriott Corp., Geico Corp. and Hechinger Co. "We were the bankers for Pepco and Washington Gas Light. But they had to move on."
Alex. Brown, however, a securities firm with about seven times the capital of Johnston, Lemon and one of the four or five largest regional firms in the country, is an important manager for many Pepco offerings, Farquhar said.
Brown is one of the oldest securities firms in the nation, founded in 1800, and some of its officials are seventh-generation descendants of the founder. Brown is a firm long identified with Baltimore, and Baltimore with it.
The local identity is important in a stable city such as Baltimore or Richmond, where there is established wealth and a minimum amount of transience. In Washington, however, where the local jokester's standard line is that the city issues birth certificates to residents who stay more than 10 years, the local firms have a more difficult time attracting customers.
"The firms in this city have a surprisingly small share of the market," according to Ferris, whose father founded the firm in 1939 and remains its chairman. "Someone who comes here from out of town will have heard of Merrill Lynch, probably dealt with them and go to the local Merrill Lynch office."
Nevertheless, the three biggest Washington firms have been able to carve out enough of the market to be profitable, and both Ferris and Johnston, Lemon have expanded their securities to go beyond normal stock and bond activities into real estate syndications, tax shelters and other financial services.
"We consider ourselves the first regional financial services firm," Ferris said. But both Johnston, Lemon and Ferris refuse to deal in commodities, one of the hottest investment arenas on Wall Street. Ferris said commodities generate a lot of commissions for brokerage firms but that customers do not do well.
"If commodities are so good," Ferris said, "then where are the customers' yachts?"
Folger Nolan Fleming Douglas, which traces its roots to the Civil War era, also avoids the commodities business. Folger avoids nearly all financial services beyond traditional brokerage functions, according to vice president Leslie Douglas. The firm, which has the most capital of any in Washington, has added an investment counseling division. But for most other financial services, clients will have to go elsewhere.
"I guess you could call us conservative," Douglas said. "But we feel this is the best way to serve out clients, with most of whom we have a long-term relationship.
"Don't forget, the people who are fabulously successful have the same characteristics as those who are unsuccessful. They invest in new companies, concentrate in just a few issues and have a lot of practice."
Folger tends to put its clients in stocks with "value," Douglas said, and tends not to follow the trend. "We might be buying Sears now -- its an unpopular stock with much underlying value. We're not apt to be buying Genetech [the hottest new genetic technology stock on the Street]."
While Ferris and Johnston, Lemon are active investment bankers, Folger Nolan does not deal with the financing needs of local companies. Instead, the firm's activities in underwriting are limited to "participating" in underwritings managed by big New York firms. "I think we've participated in nearly every underwriting by Morgan, Stanley -- one of the premiere Wall Street investment bankers."
Most of the companies whose offerings Folger participates in are large, well-established firms, and Folger usually finds buyers for its allotment of stock among its own customers. All the other major securities firms in the area also frequently "participate" in investment syndicates managed by big New York houses.
But executives such as Ferris -- whose company is the only Washington firm run by full-time managers who do not also have brokerage clients -- believe that the old-line securities firm cannot survive as a regional entity.
"Our clientele have needs that go beyond securities," Ferris said.
All together, the Securities Industry Association lists 15 District, Virginia or Maryland companies as among the 324 largest securities firms in the country (in terms of capital), in the 1980 Securities Industry Yearbook. t
The other six are: Davenport & Co., Richmond, capital of $1.36 million (rank: 221), 60 employes; Branch, Cabell & Co., Richmond, capital of $1.17 million (rank: 233), 70 employes; Investment Corp. of Virginia, Norfolk, capital of $1.16 million (ranked: 234), 42 employes; Anderson & Strudwick Inc., Richmond, capital of $755,800 (rank: 264), 100 employes; Cecil, Waller & Sterling Inc., Richmond, capital of $422,412 (rank: 289), 31 employes; and Julia M. Walsh & Sons Inc., Washington, capital of $210,000 (rank: 309), 30 employes.
Among other large area investment firms, not members of SIA but engaged in a broad range of brokerage, underwriting or related businesses are:
WASHINGTON -- Bellamah, Neuhauser & Barrett Inc.; R. W. Corby & Co. Inc.; Lang & Co.; J. W. Redmond & Co.; Riviere Securities Corp.; Robinson & Lukens; Sade & Co. and Wachtel & Co.
VIRGINIA -- Rand Investment Corp. of America, Arlington; Manna Financial Planning Corp., Falls Church; and Mason & Lee Inc., lynchburg.
MARYLAND -- Brokers Exchange Inc., Lutherville; Laidlaw Martin & Moysey Inc., Rockville.