Big brokerage bridles as salesmen cut loose

On a Friday afternoon in late June, after the stock market had closed, five of the six stockbrokers who worked in the Bremerton, Wash., office of Foster & Marshall Inc. resigned.

They left with photocopied lists of their customers. But in a short time they were once again writing brokerage tickets -- now for Boettcher & Co., a Denver-based brokerage. Boettcher is expanding in the Pacific Northwest.

The brokers' departure for Boettcher has become part of an exodus of top sales people from Foster & Marshall Inc., a subsidiary of Shearson/American Express. It's considered an embarrassment for Shearson, which bought F&M, a regional brokerage house in the Northwest, for $76 million in March. Many of the brokers who left were part of F&M's ''chairmen's club,'' which meant they had gross commissions exceeding $250,000 a year.

Some members with commissions of $150,000 per year also left -- taking most of their customers with them.

Of F&M's total of 350 brokers, at least 26 of the top 40 have left for Boettcher or two Minneapolis-based brokerages, Dain Bosworth Inc. and Piper, Jaffray & Hopwood Inc. According to the Seattle Times, at least 51 brokers from F&M had left as of July 20. Independently, other sources estimate that 50 to 60 brokers have left, taking with them $6 million to $7 million in annual retail revenues. Last year, F&M had $30 million in retail revenues.

Shearson has brought lawsuits against the 26 brokers and all three firms, claiming theft of property (the lists of customers). In one case, in a suit filed in Seattle, Shearson claimed ''unfair competition'' under the state's antitrust laws. It asked for $10 million in compensation.

At least two of the cases have been referred by judges in district courts to arbitration at the New York Stock Exchange. The lawsuits, outside sources maintain, are to keep still more brokers from going.

Last week, Boettcher sent out a statement on the Business Wire, a public relations news wire, claiming the lawsuits were a modern-day version of David and Goliath. Boettcher noted that Shearson was 35 times its size. F&M had revenues last year of $60 million to $70 million; Boettcher had $50 million to $ 55 million; and Shearson, $936 million.

Kenneth R. George, director of Boettcher's Pacific Region division, denied any wrongdoing. He stated most of the brokers contacted Boettcher. Boettcher did not try to woo them.

According to brokers working at Foster & Marshall, the main reason they left was they didn't want to work for a ''New York City broker'' -- as regional brokers, they resented what they termed ''an intrusion'' by the New York firm. They also pointed out that when Shearson took over, the firm changed the commission schedule, which would have cut into their earnings.

On the other hand, Boettcher made many of the brokers limited partners. Mr. George, in an interview, said that last year Boettcher, a respected member of the New York Stock Exchange, returned 110 percent on partners' capital. Over the past 10 years it has averaged 100 percent a year, he stated.

Shearson won't comment on the lawsuits. But a spokeswoman says even though Shearson cut commission rates during the F&M acquisition -- independently reported to be by 10 percent -- the brokers can still do as well, or better. Besides F&M's products, the F&M brokers can offer Shearson products too -- thus increasing sales.

This has happened with past Shearson acquisitions. John McCann, Shearson's branch manager in Chatham, N.J., says when Shearson acquired Faulkner, Dawkins & Sullivan five years ago, his gross commissions were $165,000 a year. About 90 percent of that was from the stock market. Today, he says, only 9 percent of his commissions come from the stock market. Yet this year he expects to double his gross commissions from five years ago.

When Shearson acquired FD&S offices in Florida and New York, Mr. McCann recalls, brokers deserted in droves. Since then, 30 percent have returned.

In the meantime, several of the lawsuits filed by Shearson have been referred to arbitration at the New York Stock Exchange.

Economic defeasance may have had a very short time in the sun.

The Securities and Exchange Commission is expected to ask for a moratorium today (Aug. 16) on further corporate deals involving defeasance.

The tongue-twisting term is a debt-restructuring method permitting corporations to increase their earnings. They do this by placing some old corporate debt in a trust and then placing enough government securities in the trust to pay the interest and principal of their own debt.

Companies claimed this allowed them to improve their balance sheet because they could take note of the decline in value of their older debt. Second, if interest rates decline, and as the government securities mature, they will have a capital gain. Exxon did such a deal, adding $130 million to its second-quarter earnings.

Overruling a staff decision, the Financial Accounting Standards Board decided last week corporate use of defeasance was inappropriate. Since a previous FASB decision had allowed defeasance for municipal bonds, corporations had assumed the rule would carry over to their own debt.

It has not been decided whether the moratorium will be applied retroactively to Exxon and Kellogg, the only other company that has used defeasance.

The stock market struggled to contain losses last week. Although interest rates declined, investors remained leery. The Dow Jones industrial average closed the week at 788.05, a gain of 3.71 points.