When an electric power failure shut down the New York Stock Exchange suddenly on Wednesday afternoon, the Washington investment firm of Johnston, Lemon & Co. Inc. became the center of a small universe for the first time in history.
Bidding and buying of stocks in which the 60-year-old local company is a primary trader, or market-maker, were conducted here and through Johnston, Lemon traders at the Philadelphia Exchange. It's an event that would not have taken place two years ago.
What has happened over those 24 months is a major transformation of Washington's largest securities company in terms of daily volume of stock trading, customer accounts (some 13,000) and employes (250). Two years ago, Johnston, Lemon conducted its New York business through a correspondent securities firm; when the other brokerage was acquired, the long ties with Johnston, Lemon were ended and the Washington firm was forced to establish on its own a more complete system of supporting services and technologies.
And now, Johnston, Lemon is about to make a move that signals the beginning of a substantial business expansion. Next April the investment firm plans to move several blocks from crowded quarters in the Southern Building at 15th and H streets NW to some 32,000 square feet on two floors of the new American Medical Association building under construction at Vermont Ave. and L St. NW.
James H. Lemon Jr., president and chief executive of Johnston, Lemon, said yesterday that as far as he can determine, the securities firm has been at the same location since it was founded in 1920 except for a six-month interval when the business moved across 15th Street. Lemon said the new building will allow his firm to expand services for customers and sales professionals and build the foundation that will permit growth in all investment sectors.
In an interview with Lemon and three of his top executives, he emphasized that the expansion is part of a strategy to keep Johnston, Lemon alive in future decades as a locally owned, local-oriented investment firm in an era when financial giants will come to dominate much national business.
"We are completely committed to independence . . . we have an edge here in Washington. Business will be very difficult but we know our area, our particular business," said Lemon, whose firm in previous years organized, managed or co-managed initial or subsequent stock offerings of such success stories as Government Employees Insurance Co., Marriott Corp. and Hechinger Co.
According to Julian Gillespie, executive vice president and a specialist in the firm's rapidly growing corporate finance sector, the goal of Johnston, Lemon's management is to become a very complete firm in terms of service in Washington to retail and business customers. There should be no need for a local company to go to New York for investment counseling, he said.
"The business has changed dramatically in the last decade and revenues now come from a variety of sources" rather than primarily from stocks, Gillespie said. "We want to have the best people in various specialties . . . we have in place the experts, and the new building will provide more convenient and attractive facilities to assist the brokers and clients."
With a full range of market traders, research analysts, corporate finance people and other specialists based in modern quarters, Johnston, Lemon will be in a position to boost its sales staff. One problem investment companies have faced in the past is that they expanded their sales staff and retail volume before they had adequate support services, and several have failed or have been forced to merge as a result.
Currently, Johnston, Lemon has full local branches in Bethesda and Alexandria, as well as a smaller office at Tysons Corner; a floor broker at the New York Stock Exchange; and about a dozen persons in Philadelphia to handle the Washington company's big operations on the trading floor of the Philadelphia Exchange (formerly the Philadelphia-Baltimore-Washington exchange).
While Lemon and his colleagues said they expect to expand their operations, they emphasized that they plan to concentrate growth in the metropolitan Washington area and not in Baltimore or Richmond, for example. "If you go too far, you lose control," said Vice President Terry Wallace, who heads the sales operation.
Lemon, Gillespie, Wallace and chief financial officer William Lawrence said they will consider acquiring other investment-type businesses and that they have studied in great detail the possibility of starting a money market mutual fund (the D.C. company manages an equity fund, Washington Mutual Investors, and Johnston, Lemon has a working relationship with a successful local money market fund, Fund for Government Investors).
Only one other investment sector is absent from the Johnston, Lemon offerings -- commodities trading. Lemon said he does not expect to enter that business unless it's through a managed pool or fund.
Although all four men agreed that a revolution in financial services has started, with National Steel Co. now a major interstate savings and loan business and Sears, Roebuck preparing its own money market investment plan for its retail customers, Gillespie said Johnston, Lemon will roll with the changes. "There's probably no one in this town with a clear view of the future," he added. "We feel there will be a real need for an investment firm with a local identity."
Lemon said that even though there have been a number of mergers and acquisitions involving local businesses, Washington's private sector is headed for more growth and that means more local business in money-raising, mergers and general investments. Specialists on his staff have identified 145 companies in metropolitan Washington with public stockholders and many more firms developing such a status.
Essex Corp. of Alexandria, has a proposed public offering in progress, and Johnston, Lemon is the agent for NS&T Bankshares' takeover bid for Security Bank. The company has been handling a large number of industrial revenue bond offerings; co-managed a Pope, Evans and Robbins offering last year of 900,000 shares; arranged private placement investment in Manor Care Inc.; and was financial adviser for Clarkson Industries' recent takeover of Airflow Co., of Gaithersburg.
Johnston, Lemon ended its fiscal year last April with capital of $4.95 million, all of it stockholders' equity and no subordinated debts. Despite a sluggish market since, the firm has been profitable every month, and capital now has passed $5 million for the first time, Lawrence said.