Philadelphia brokerages wary of being taken over
Janney Montgomery Scott . . . Elkins & Co. . . . W.H. Newbold's Son & Co. . . . Butcher & Singer.
They are the Merrill Lynches and Paine Webbers of Philadelphia. Some of their roots can be traced back two-thirds of the way through the city's 300-year-old history. Their old-line names and conservative image were familiar to local investors long before the ''bull'' logo of their national nemesis, Merrill Lynch , was born.
But the Philadelphia foursome are part of a breed throughout the nation --the regional brokerage firm--that may one day be extinct, if the acquisition of Elkins by the aggressive Bache Halsey Stuart & Shields in March is a portent of the future.
A decade ago, dozens of securities firms were based in Philadelphia, many of them boasting close connections with the city's famous old families--the Biddles , the Bodines, the Drexels. But just as the number of national brokerages has dwindled of late in a wave of capital-consolidating mergers, so has the cast in the investment community of Philadelphia diminished.
Today, the city boasts only a handful of full-service regional firms. Bigger regional operations like Janney, intent on staving off the advances that national brokerages have made with their branch offices here, have swallowed up their smaller counterparts. The sum of their parts has made them a more even match for their national competitors.
''The brokerage business since the early 1970s has changed so dramatically in Philadelphia,'' Janney's president, Norman Wilde, says. ''Probably only one-third of the regional firms are left--either because they've gone out of business or because they've merged with each other or been acquired by one another.''
Bache, for instance, had just snapped up the sizable West Coast broker Bateman Eichler Hill & Richards in early March, and, less than a year earlier, had absorbed the Midwest firm of Bruns Nordeman Rea. And sandwiched in between those moves was Bache's own acceptance of an irresistible acquisition offer from the Prudential Insurance Company.
Philadelphia's other regional brokerages, which until now may have considered themselves too small to be of interest to the nationals, are all of a sudden faced with the stark fact that they are now ripe takeover targets. Both Janney, with $20 millon in equity capital, and Butcher & Singer, with $8.5 million, are even more succulent prospects than Elkins, which has a net worth of $3 million.
The other brokers in the city will also have to revise their opinion of Philadelphia's appeal for acquisitive outside firms. One broker, speaking just days before the Bache-Elkins news broke, had scorned the notion of Philadelphia--a city with a declining population base - being sought after by fast-growth-oriented securities firms. ''Compared to the West and the South, the Delaware Valley market is hardly a plum,'' he had insisted.
Obviously Bache disagrees. In fact, according to Robert Hayden, chairman of the Elkins executive committee, Bache recognizes that the country's fourth-largest city is ''very profitable. There are a lot of people here with a lot of money to invest.''
Another traditional argument against the acquisition of regional firms by national ones like Bache and Merrill and Smith Barney, Harris Upham is that they ''already have a strong presence here with their own offices,'' as one local manager puts it. Yet Bache has proved such reasoning fallacious. So intent is Bache on building its reputation in Philadelphia that it is allowing Elkins, an entrenched, recognizable name, to operate as an entirely separate subsidiary--complete with its own name, its 14 offices, and its 150 account executives--for at least three years.
So far, though, Janney, Butcher, and Newbold's appear content with their own growth rates and do not seem eager to shuck their private ownership to gain access to huge sums of capital. In fact, their growth has been impressive, and in the merging and weeding-out process of the past decade they have emerged on firmer footing than ever. They have expanded their revenues, opened branches outside the city, and diversified their services.
The difference in firepower between the regional institutions and their national counterparts is created, in large measure, by the nature of their shareholders. Whereas most of the big brokers are publicly owned, the regionals - except for Elkins now--are still privately held. And, in the latter camp, family ties still abound.
The regionals here have also drawn a few steps closer to the national firms in their level of professional management. Janney reached outside when it added four experienced executives to its management.
Still, for all their increasing sophistication and modernization, the regional firms have retained their traditional flavor and independent spirit. In fact, they are so imbued with the heritage of this history-laden city that several of them have filled reception rooms and offices with fine old prints and paintings bearing such titles as ''George Washington at Valley Forge'' and ''The Commemoration of 1776.''
But if Mr. Hayden at Elkins is right, his private compatriots in this city will be kneeling at the altar next to some publicly held spouse sooner rather than later. His rationale: ''You can't be a full-service firm anymore unless you have the significant financial resources of a national firm at your disposal.''
Trading was mixed and cautious this week. The Dow Jones industrial average closed at 857.78, falling 11.42 points for the week. Braniff's bankruptcy boosted other airline stocks, but may have helped depress the overall market.