Ferris, Baker faces big loss

Failed firm owes local brokerage $18 million

October 13, 2001|By Bill Atkinson | Bill Atkinson,SUN STAFF

Ferris, Baker Watts Inc., a regional brokerage based in Baltimore and Washington, is facing $18 million in losses after the failure of a Minneapolis stock clearinghouse to which it had lent the money.

Louis J. Akers Jr., Ferris, Baker's chief executive officer, confirmed yesterday that the loan had been made to MJK Clearing Inc., but said the firm has plenty of capital to absorb the loss if the money is not repaid.

"From Ferris, Baker's perspective, it [the loan] has no impact on us whatsoever," or "on ... our ability to operate," Akers said. "Our excess capital is still much higher than most firms our size."

Ferris, Baker, which has branch offices in seven other states, had $41.7 million in net capital as of Feb. 23, exceeding net capital rule requirements by $39 million, according to its consolidated statement of financial condition.

Akers, who was attending a retreat with the firm's 50 top brokers and their spouses at Nemacolin Woodlands, a resort in Farmington, Pa., said the firm could still recoup "100 percent" of the loan.

"If we don't recoup one penny of it, it is irrelevant to our clients," Akers said. "Not one cent of our clients' money was ever exposed. It is not an urgent situation."

Ferris, Baker was among four firms that lent about $125 million to MJK Clearing, which processed stock trades for the brokerage subsidiary of its parent, Stockwalk Group Inc., of Minneapolis, and 64 other brokerages throughout the country, said Matthew Kyler, executive vice president of marketing at Stockwalk.

The other firms included E*Trade Group Inc. of Menlo Park, Calif., the country's second-biggest online brokerage, Robert W. Baird & Co. of Milwaukee, and Pax Clearing Inc. of Chicago.

Last month, MJK Clearing slipped below the Security and Exchange Commission's net capital rules after a client defaulted on a $60 million payment to the firm, Kyler said.

Two weeks ago, the Securities Investor Protection Corp., a federal organization that insures investor accounts when a brokerage is insolvent, appointed a trustee to take control of MJK Clearing.

"When it all plays out there is going to be some serious capital damage inflicted," Kyler said.

Robin Oegerle, a Ferris, Baker spokeswoman, said that the firm's general counsel is working with an outside law firm to "fully investigate the situation and explore all of our options."

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