Local brokers fare well while N.Y. cuts

October 16, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

The news from Wall Street lately has sounded ominous. Kidder Peabody & Co. says it will restructure and fire 550 people. Salomon Inc. says it will announce a $100 million third-quarter loss. Even Goldman, Sachs & Co., one of the kings of Wall Street's hill, plans layoffs.

But Baltimore brokerage firms like Legg Mason Inc. and Alex. Brown Inc. are less vulnerable to the trend. Like mutual fund titan T. Rowe Price Associates Inc., Legg Mason and Alex. Brown say they are still growing, despite the rumblings from New York.

The key reason: The local firms tend to stay out of some capital-intensive, high-risk businesses like bond trading, which is pounding Salomon and Goldman Sachs as interest rates rise. Furthermore, retail brokerage firms like Legg Mason have an easier time adjusting their expenses as the markets fall -- if commissions from individuals' stock trades fall, commissions the firms pay brokers fall as well.

"The regional firms from time to time will let people go," said Perrin Long, an independent stock analyst who follows investment banking and brokerage firms. But he said big New York houses are much more likely to fire people -- and fire more of them -- when business turns down. Baltimore firms are likely to trim back-office staff with measures short of layoffs, while continuing to add salespeople who can build new business, he said.

Earnings for the quarter that ended in September -- due to be reported later this month -- will be lower than last year, leaders of the two local brokerage firms concede.

lTC Analysts expect Alex. Brown to earn somewhere between 65 cents and 80 cents a share, down from 95 cents in the same period last year. Legg Mason is expected to earn 60 cents a share, compared with 94 cents a share for the same period a year ago.

The culprits: a stagnant stock market, with major market averages moving within narrow ranges; slow new-issue and merger markets; and a bond market that has fallen sharply as interest rates have risen. High-risk players can crash under those conditions, but even lower-risk players get hurt in market declines. It's just a question of how much.

"Sometimes there's nothing you can do," said A. B. "Buzzy" Krongard, chief executive at Alex. Brown.

Nonetheless, the picture for local firms is pretty much as Mr. Long guessed.

"If it wasn't for 1993, people in our industry would be quite happy," Mr. Krongard said. "It's hard to compare against what may go down as the best year in the history of Wall Street."

Like executives at Legg Mason and T. Rowe Price, Mr. Krongard said Alex. Brown hasn't laid off any employees this year and doesn't plan to. Indeed, Alex. Brown has lived up to most of Mr. Krongard's prediction last winter that the firm would hire 200 people this year. Through September, the firm had added 125 workers, bringing the staff to 2,263.

"Sometimes the best time to get good people is when people are available," Mr. Krongard said, meaning that problems at bigger competitors can be an opportunity for Brown. "People are

becoming available in wholesale quantities."

Underwriting of public stock and bond offerings fell 51 percent during the third quarter, hitting the lowest level since early 1991, according to Securities Data Co. of Newark, N.J., leading to a 32 percent industrywide drop in commissions in one of Alex. Brown's key businesses. But the firm avoided taking big hits on bonds because it doesn't own a lot of them, Mr. Krongard said.

"We don't trade for our own account in the bond market," he said. "We take positions to accommodate our customers' trading."

Legg Mason has opened nine offices this year and plans to make it a dozen by the end of the year, Executive Vice President Robert G. Sabelhaus said. The firm has also diversified by acquisitions that expanded its money management and real estate-related businesses, he said.

"We tend to do most of our expansion and open new branches when the market is down like it is now," he said.

At T. Rowe Price, the mostly small-investor customers have stayed the course so far. Spokeswoman Rowena Itchon said Price had $54.5 billion under management at June 30, up from $46.6 billion a year earlier. During the third quarter, funds flowed into the company's mutual funds 20 percent faster than last year, she said; the firm keeps the numbers confidential.

"There's every indication this will be a good year," T. Rowe Price Chief Financial Officer George A. Roche said. "We'll be adding people in the coming year. . . . A lot of [analysts] think the company might grow 12 to 15 percent next year."

Analysts surveyed by Nelson Publications Inc. on average expect T. Rowe Price to earn 49 cents a share in the third quarter, compared with $12 million, or 39 cents a share, in the same months of 1993 after results are adjusted for a later stock split.

"The snapshot for us is that things are going well," Mr. Roche said.

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