Drysdale Securities Corp. announced yesterday that it was going out of business, less than a month after its offspring, Drysdale Government Securities Inc., triggered a near-panic in financial markets when it couldn't pay the more than $200 million it owed other brokerage firms.
Drysdale Securities Corp. insisted throughout last month's crisis that although it had set up the government securities trading firm and given it its name, there was no other link between the two firms other than a $5 million investment.
However, Joseph Ossorio, chairman of the parent company, is a member of the government securities firm's board of directors.
Drysdale, in a brief statement, gave no reason for its liquidation. But Wall Street sources speculated that Drysdale may have decided to liquidate because it feared a lawsuit from Chase Manhattan Bank. Chase, which was the agent for Drysdale Government Securities, paid the offspring's debts of about $285 million. After taxes, it will cost Chase about $117 million, more than it earned in the first three months of the year.
The New York Stock Exchange issued a terse statement saying that Drysdale appeared to be in "satisfactory financial condition" except for "possible contingent liabilities"--which Wall Street sources said referred to the potential Chase lawsuit.
Peter Wasserman, president of Drysdale Securities, told Dow Jones News Service that the problems at Drysdale Government "didn't help" his firm, but would say no more. Wasserman did not return other phone calls from reporters.
The stock exchange said no customers of Drysdale would suffer because all of its accounts would be picked up by Bache Halsey Stuart Shields Inc., the $314 million brokerage firm that has processed most of Drysdale's trades for several years. Drysdale had $5 million in capital at the end of May.
Drysdale's offspring government securities trading firm speculated its way to accumulating more than $6.5 billion in government securities--by buying and borrowing them--in its four-month existence. The firm, with only $20 million in capital, had securities positions as big as firms with 20 times as much capital.