Concern about the stability of the government securities market surfaced again today as officials of the Federal Reserve Bank of New York acknowledged that they are investigating problems at another little-known government securities firm.
The New York Fed launched its inquiry Thursday after Marine Midland Bank N.A. notified federal regulators of financial difficulties involving one of its customers, Comark, a California government securities trader.
Marine Midland suspended clearing agent services for Comark on Thursday and then resumed it today. The bank said only that it had held "discussions" with the firm "concerning its banking relationship." Other Wall Street sources, who requested anonymity, said Comark's difficulties were "back office," or accounting, problems.
Word of the actions added to a gloomy picture on Wall Street, encouraging nervous brokers to sell a variety of stocks.
Government securities traders waited anxiously in the hope that Comark's problems would not match those of Drysdale Government Securities Inc.
Last month Drysdale could not meet $160 million in interest payments owed to several brokerage houses. Drysdale's bank, Chase Manhattan, was forced to absorb those losses, which will wipe out the bank's second-quarter profits.
Clearly nervous about the repercussions of the Drysdale situation, Marine Midland was quick to note in two midday statements that it would suffer no losses in connection with Comark's difficulties. The bank has been involved with Comark for about a year and a half.
"In response to inquiries regarding its relationship with Comark," the bank said it "has incurred no losses nor does it expect to." The bank, the nation's 14th largest with assets of $18.6 billion, said the clearing-agent relationship "did not involve the lending or borrowing of securities either as agent or as principal."
The actions followed rumors throughout the week of further government securities trading problems. Those rumors reached Fed officials several days ago, and they began discussion with Comark representatives at midweek.
Last night the Fed sent an official to Newport Beach, Calif., Comark's home base, "to work with them and to give us a picture of the scope of the problem," a spokesman said.
Marine Midland notified Fed officials of the problems yesterday, but resumed dealing with Comark after the firm agreed to provide new collateral to cover its obligations, Wall Street sources said.
An attorney for Comark, David Harkins, only would repeat statements issued by Marine Midland. "We are alive and well and actively trading," he said from California.
Although Harkins said Comark is exclusively in the business of trading government securities, he refused to provide other information.