Peak – 1978 to 1980
Peak – 1978 to 1980
The Fiscal Year 1978
In early fiscal 1978, Ira Wender, new President as of February 1, was introduced to the organization through a special interview in the February 3 issue of GroupDynamics.
On January 4, just before Ira's initial day in office, Maurice (Maury) Mann joined WPB (San Francisco) as a Vice-Chairman. He began rather promptly to lead WPB's role and staff development in the financing and restructuring of saving and loan associations and other thrift institutions around the nation.
Trading activity on the exchanges was growing in early 1978 with new volume records being set on the NYSE and CBOE in May.
In mid July, Jacques de Fouchier retired as Chairman of Paribas to be succeeded by Pierre Moussa. Gerald Eskenazy and Francois Morin became Paribas Co-Presidents, succeeding Moussa. Pierre Haas and Herve Pinet became Co-Presidents of Paribas International. Becker management was familiar with all of these key Paribas personnel.
Becker Securities Combined Into A.G. Becker
In late July, Wender took his first step in the restructuring of BWP when he combined the two subsidiaries, A.G. Becker & Co.and Becker Securities Corp., into one corporation, A.G. Becker & Co., with one trading name, A.G. Becker, Inc. ("AGB"). (AGB Municipal Securities Inc. was liquidated into AGB).
Jack Donahue was named Chairman, and Jack Wing, President, of AGB, each with the same operational responsibilities as prior to the consolidation. Wender continued as Chief Executive of the parent company, BWP, and became Chairman of the Executive Committee. Fred Moss, Bill Cockrum, and Maury Mann were named Vice-Chairmen of AGB, again without change to their management and client development responsibilities. The following were named Senior Vice Presidents: Stu Gassel, Ray Holland, Bill Leddy, and John Levy. Barry Friedberg and Dan Good were named Directors and continued their duties as before. Tom York continued forward as Executive Vice President of AGB.
Warburg Paribas Becker Continues Forward
With the above reorganization, WPB continued forward as the other operating subsidiary of BWP. The archives are not clear as to when and how Ed Dugan was terminated as President and Chief Operating Officer of WPB, but presumably this action was taken before or with the above reorganization. Dugan's position was left open temporarily. With the reorganization, Barry Friedberg and Dan Good were named Directors of AGB and continued their duties as before. Toward year end, or in early January, 1979, Dan was named a Vice Chairman of AGB, and Executive Vice President and General Manager of WPB. Barry was named a Senior Vice President of AGB and Executive Vice President of WPB. Rudy Peterson and Paul Judy continued as Co-Chairmen of WPB.
Management Committee Formed
Prior to the above consolidation, Wender had established a Management Committee consisting of himself as Chair, meeting weekly with the following members: Donahue, Wing, Moss, Dugan, and Cockrum. With the above restructurings (and ex-Dugan), Wender added the following to the Management Committee: Friedberg, Good , Gassel, Holland, Levy, and York.
In December, 1978, Wender hired William P. Kane, Jr. as a marketing assistant, soon giving him the title "Director of Marketing." Bill Kane previously had been vice president for development of Schulman Transport, and prior thereto had been Director of Market Planning for Seatrain Lines. He had a BBA from Notre Dame and an MBA in marketing from NYU.
Through the internal weekly newsletter, GroupDynamics, the following were the main activities that were reported for the balance of 1978. A retail brokerage office was opened in Minneapolis (after over fifty years of not being present in that city). WPB entered the corporate real estate services business with Dick Elwood and a team joining the New York office. The block business continued at a high pace with the allocation of more capital supporting larger positioning. Some thirty seven employees were elected Vice President in September. Given poor results (see later), there was no interim profit sharing bonus. On the brighter side, Corporate Finance Weekly reported that WPB/BWP had the largest gain - for the second year - among all Wall Street firms in new investment banking clients. MARKSCAN was now being offered to investment dealers through the good work of John Burman. Jack Wing was elected Vice-Chairman of the NASD. Finally, an office was opened in San Juan, Puerto Rico (via a new subsidiary), and given limited authority, with oversight from New York, to underwrite and distribute the securities of Puerto Rican issuers.
Highlights for the year taken from the 1978 Annual Report for AGB and WPB, which was available and publicly distributed in January, 1979, were as follows. (This listing will also serve as a reminder of the range and magnitude of services which Becker was offering in 1978).
- Short term Corporate Securities:
- Daily transactions in these securities of over $1 billion per day.
- Over $55 billion in short term bank instruments handled during the year.
- Largest short term, fixed income securities sales force in the business – experienced sales people in ten major cities.
- Some 220 commercial paper issuers with daily outstandings of over $8 billion.
- First German industrial corporation to enter the US open market.
- Federal Government Securities:
- Primary Dealer reporting daily to the Federal Reserve Bank of NY
- Distribution in the primary and secondary market of $85 billion of government and government agency securities.
- Raised over $10 billion in new funds for the US government and its agencies.
- Tax-Exampt Securities:
- Managed, co-managed, or active as advisor on $3.5 billion of offerings.
- Maintained active secondary markets; institutional and individual investors.
- Specialized in educational, housing, and health care financing.
- Long Term Corporate Securities:
- Managed or co-managed over $1 billion in corporate debt or equity securities.
- Distributed well in excess of underwriting commitments.
- Distribution to over 3,500 institutions.
- A leader in private placements of debt securities in the institutional marketplace.
- International Financing:
- Co-managed one of only two stock issues simultaneously offered in the US and abroad.
- Diverse dollar financings related to North Sea, United Kingdom, Brussels, and Canada.
- Provided services to over 100 non-U.S. corporations.
- Mergers and Acquisitions:
- A range of transactions, many in coordination with Warburg and Paribas.
- Financial Institutions
- Finance and leasing companies, banks, their holding companies, and thrift institutions.
- Managed, co managed, or was agent in raising $485 million of long term financing for financial institutions
- Developed new financing techniques for thrift institutions.
- Cable TV and Communications company financing
- Active on behalf of the industry in regulatory matters.
- Record private placement activity.
- Active lender to the Cable TV industry via Becker Communications Associates.
- Corporate Real Estate
- Active in a number of debt, equity, and sale-leaseback financings of corporate property.
- Organized real estate partnerships of interest to individual investors.
- Investment Research
- A Wall Street leader in Economic Research.
- Markets Group widely recognized for its investment timing advice.
- Continued growth in the Portfolio Management Approach service (PMA).
- Some 250 equity issues followed by Investment Research.
- Institutional Brokerage
- Instant access to all markets through four trading desks and brokers on all exchanges.
- Reintroduced over-the-counter market making and executions.
- Strong participation in U.S. securities in the European investment markets through London and Geneva offices.
- Retail Brokerage
- Comprehensive security selection for individual clients with a portfolio approach.
- Introduced tax-advantaged investment opportunities.
- Investment Dealer Services
- More than 600 clients for various services.
- Introduced commodities services to investment dealer clients through AGB-Kipnis.
- Investment Performance Evaluation
- Maintained position as a leading vendor of services to investment fiduciaries.
- Measured the performance of over 4,000 funds with 1,500 clients.
- Funds measured amount to $85 billion in market value.
- Database which holds investment information on over 700 investment managers.
Investment Banking Clientele Added
During 1978, private placements were effected for: International Paper Credit Corporation; Insilco Corporation; Aetna Business Credit Inc.; Union Oil Company of California; Transunion Leasing Corp; Dorchester Gas Corp; FMC Finance Corporation; William Leasing Company/Mellon National Leasing ; Oppenheimer Menlo Associates; Saga Corporation; Clark Equipment Credit Corp.; Skil Corporation; Northwest Acceptance Corp.; USLife Credit Corp.; Fidelity Acceptance Corp.; Communications Properties, Inc.; Paccar Financial Corp.; Cablevision Systems Development Company; Interox America; Chevron Petroleum (U.K.) Limited; Suburban Cablevision; First Federal Savings and Loan Association of San Diego; and Fidelity Federal Savings and Loan Association.
Managed public offerings were carried out for: Total Petroleum (N.A.) Ltd.; American Savings and Loan Association Sea Containers Inc.; Bank of America; Provident Federal Savings and Loan Association of Riverside; and Sante Fe Federal Savings & Loan Association.
In 1978, the firm was involved in a number of business consolidation arrangements including: Natomas Company’s acquisition of Brown Badgett Inc. and affiliates; Kaneb Service’s acquisition of Diamond M Company; Domtar’s acquisition of certain properties of Kaiser Cement & Gypsum Corp.; Racal Electronic’s acquisition of The Vadic Corp.; Gamble-Skogmo’s acquisition of Howard Discount Stores Inc.; the acquisition by Orbanco (through Northwest Acceptance Corp.) of Union Investment Company; Hayes-Albion’s acquisition of St. Louis Diecasting Corp.; and the sale of Delta & Pine Land Company of Mississippi by Courtaulds Limited.
U.S.Government Guaranteed Ship Financing Bond financing during 1978 involved a number of issuers including Lachmar (owned by three major investors) and Lawrence Steamship. Equipment Trust Certificate financing was carried out for the Baltimore and Ohio Railroad and Southern Pacific Transportation Company.
Commencing at the end of Fiscal 1978, there was a change in what financial and operations review information was publicly published. An Annual Report was prepared and distributed for AGB-WPB, the operating company consolidating the former AGB and BSC operations (now combined in AGB) along with the WPB activities. Formerly, the complete financial statements of the parent company, in which employees and W-P had share interests, were published. The publicly distributed AGB-WPB report only displayed a Statement of Financial Condition for AGB-WPB.
An accompanying internal report to the shareholders of BWP gave more information. BWP revenues for fiscal 1978 bounced up some 25% over fiscal 1977, and some 10% over the level of 1976 - but net income, after a small tax credit, was a disappointing $1.2 million, even then including an investment gain of $1.9 million. Both short and long term interest rates increased substantially during the year, unfavorably to fixed income dealings. Interest expense for the year was up almost 90% over 1977. Other expenses were up, also, but less than the 25% gain in revenues. Total footings were up to a level of over $2 billion, some 25% over the prior year level. Primarily by reason of some $7.5 million in share repurchases, and low profits, stockholders' equity declined from $41 million to $36 million. The decline in stockholders' equity was followed by a reduction in capital funds to the $56 million level.
Net asset value per share as of October 31, 1978 was $30.60 up slightly as compared with $28.52 the prior year. (After a subsequent stock split, respectively $15.30 and $14.26).
The Fiscal Year 1979
Combination of AGB and WPB
In mid-January, 1979, in a final step of the reorganization initiated in August, 1978, the two primary operating subsidiaries, AGB and WPB, were placed together in "AGB-WPB Incorporated,” a wholly owned subsidiary of BWP. It was announced, too, that AGB-WPB would be emphasized over time, and BWP deemphasized. In print, the trade name "A.G. Becker" would begin to appear over that of "Warburg Paribas Becker" with a bold line in between
With the above announcement, it was also reported that the bi-monthly GroupDynamics newsletter would be replaced by the weekly newsletter, BeckerBriefs, which name was used for the internal newsletter within Becker before the Amalgamation.
Kipnis Investment and Kern Acquisition
A few days after the above events, it was announced that AGB would become a substantial investor in H.S. Kipnis, a major commodities clearing firm based in Chicago. With the completion of the transaction, the name of Kipnis would be changed to A.G. Becker-Kipnis & Co. It was announced that Jack Wing would oversee this investment. The transaction closed on schedule.
Later in the year, the firm acquired the market maker clearance business of Kern Option Co. on the CBOE, making Becker one of the largest clearing organizations on this exchange.
In February, the expansion of BANK:DATA to include leading Japanese and Canadian banks was announced. Further expansion was planned. The service, initiated a few years back, provided balance sheet and income statement information on the top 100 U.S. and a select group of foreign and U.S. banks and bank holding companies. The reports included detailed ratio analysis for five years in concise format, under the major headings of Capital Adequacy, Liquidity, Loan Quality, and Operations, all in comparative form, both in graphic and numerical formats.
During 1979, various personnel matters were reported including: a number of vice-president elections in February; Martin Gordon (Warburg) spending time in WPB, New York; Jack Connor rejoining the Chicago office as Vice-Chairman of AGB; Jim Ledinsky taking over the management of CPID (Commercial Paper Issuance Development); Bruce Foerster joining Syndicate; and Steve Looney joining the office of General Counsel.
For basic employees a profit sharing bonus of 3% was reported in June followed by 7% in December, cash bonuses and voluntary profit sharing contributions being over and above year end cash bonuses for managerial and supervisory personnel.
As reported in the AGB-WPB Annual Report issued in early 1980, achievements during 1979 included:
- The distribution of primary and secondary money market securities of some $320 billion.
- Serving over 250 commercial paper issuers maintaining over $10 billion in outstandings.
- The primary and secondary distribution of $80 billion of U.S. government debt securities.
- Raising over $12 billion of funds for the U.S. government and its agencies.
- The distribution of over $50 billion of bank CDs and other bank related paper.
- The management/co-management of over $2 billion raised for corporations or international agencies.
- The private placement with global institutions of over $1 billion in securities value.
- The management/co management or private placement of $4.7 billion tax exempt securities.
- Participant as a major underwriter in some 300 public offerings totaling $18 billion.
- The maintenance of relations with some 3,500 investing institutions in the world.
Some specific events of note during the year were:
- Initiating the first open market borrowings by a savings and loan association.
- Co managing the $125 million issue of the European Coal and Steel Community.
- Advising in some 20 M&A transactions, a number of which involved a non-U.S. party, including the representation of the National Coal Board Pension Plan in the successful unsolicited bid for Continental Illinois Properties (the first successful hostile bid for an REIT).
- Providing services to 30 thrift institutions; becoming the leading firm in this field.
- Completing three deals involving major communication/entertainment companies.
- Organizing the equity based partnership to own the World Trade Center Hilton.
- Becoming financial advisor to the John D. and Catherine MacArthur Foundation.
- Accelerating innovation and forms of delivery of investment research.
- Increasing the firm's market share of institutional transactions on a global basis.
- Introducing new Funds Evaluation services: investment policy analysis, and manager search.
- Investment gains for 1979 were $2.1 million, making a total of $4 million for 1978-79.
Investment Banking Clientele Again Extended
Specific companies for which Becker carried out some investment banking service during 1979 included:
European Coal and Steel Community; Sun Company, Inc.; Weyerhauser Real Estate Company; Aetna Business Credit; Aquitaine Company of Canada Ltd.; Borg-Warner Acceptance Corp.; International Paper Credit Corp.; Mach Financial Corporation; Miles Finance Company, Inc.; Postal Finance Company; A.J. Armstrong Co. Inc.; Caribbean Finance Company, Inc.; Equico Lessors, Inc.; IC Products Company; Industrial Finance & Thrift Corp.; Northwest Acceptance Corporation; WTC Hotel Associates; The Davey Tree Expert Company; Deaconess Hospital of Spokane, WA; Fairfield Communities, Inc.; Mack Trucks, Inc.; Metro Self-Storage L.P.-1; Novamont Corporation; Spartan Stores, Inc.; Steuber Company, Inc.; Natomas Company; Nautilus Fund; Pittston Company; Santa Fe International Corporation; Telecommunications, Inc.; United Subscription Television, Inc.; and U.S. Home Corporation.
1979 witnessed the significance of corporate finance specialization in the thrift industry with a large number of conversions and financings overseen by WPB, the work of Maury Mann, Milt Walters, and their team, enhanced by the long established investment research reputation of Bob Chaut. These transactions included services to: American Savings & Loan Association; Buckeye Federal Savings & Loan Association; California Federal Savings & Loan Association; Central Federal Savings & Loan Association; Dade Savings & Loan Association; Downey Savings and Loan Association; Eureka Federal Savings & Loan Assoc.; First Federal Savings and Loan Association of Santa Monica; First Federal Savings of Detroit; First Federal Savings and Loan Association of Cleveland; Home Federal Savings and Loan Association of San Diego; Imperial Savings & Loan Association; Monterrey Savings & Loan Association; Pacific Federal Savings & Loan Association; Republic Savings & Loan Association of Wisconsin; and Union Federal Savings and Loan Association of Los Angeles. Mortgage Pass Through Certificates generated by Bank of America N.T. S.A., Central Federal Savings & Loan Association, and PMI Mortgage Corporation were placed.
The firm was involved in the following business consolidations: Bouverie Properties, Inc. purchase of a substantial interest in Continental Illinois Properties; TransUnion Leasing’s acquisition of Lepeska Leasing Corp.; Kaneb Services’s acquisition of Southwestern Group Financial, Inc.; Midland-Ross Corporation’s acquisition of Electro-Nite Co.; American Finance System’s sale to Security Pacific Corporation; Skil Corporation’s sale of a division; Precision Components’ acquisition of Core Industries; Ralph Sutro’s sale to Greenwich Savings Bank; Communications Services’s sale of Tandem Productions, Inc.; Home Savings Association’s (Reno, Nevada) sale to United States Leasing International, Inc.; Societe Fonciere et Financiere/Agache-Willot’s acquisition of Korvettes; and American Motors Corporation’s multi-finance agreement with Regie Nationale des Usines Renault.
During this period, Dave Murdoch was engaged in, and subsequently completed, pioneering analytical and evaluative work for the MacArthur Foundation. Also during this period, Stu Gassel resigned and Al Pisterzi took his place as manager of the Funds Evaluation services.
Amendment to the "Evening Up" Provision of the Amalgamation Agreement
Notwithstanding the other general and specific achievements of the year 1979, as above listed, a major event took place in June, 1979. As will be remembered, the 1974 Amalgamation Agreement provided, among other things, for an "evening up" of employee and W-P interests if BWP earned $20 million cumulatively before October 31, 1980. In June, 1979, the firm's internal accounting reports revealed that the $20 million bench mark for cumulative net income since the Amalgamation date was exceeded during the month, and thus a capital reorganization was to take place.
An amendment to the Amalgamation Agreement was put forth (the archives do not show the source, the reasons, or the timing). The Agreement was entered into between BWP management and W-P on February 15, 1980 and approved by the BWP stockholders on March 4, 1980. The actual reorganization transactions took place on February 22, 1980, using October 31, 1979 audited figures, adjusted for income attribution and any other matters pertaining to differences between June 30 (the month when the $20 million cumulative income test was met) and October 31.
Under the amendment, however, in simplest form, W-P would tender for employees shares up to some limit (perhaps the same limit as in the Amalgamation Agreement, which was up to 30% of all employee shares). Giving effect to that change of ownership, W-P would purchase such additional shares from BWP as needed for W-P to then own 40% of stockholders' equity, with the employees owning 60%. (The Amalgamation Agreement provided for a 50%-50% "evening up").
In connection with this change, W-P would purchase a 25 year Subordinated Note in the amount of $9.6 million (when the arrangement was actually completed, it appears the amount of the Note was reduced to $9.4 million), carrying an interest rate of 10% per annum (which rate was also less when the deal was completed). In addition, a 6% Preferred Stock was introduced at the holding company level (between BWP and AGB-WPB) with W-P taking back some of this issue for some of its common stock interest, such that it owned a combination of common stock, preferred stock, and debenture investment equaling in book value 2/3 of the value of the employee common stock and unit holdings.
In addition to the above changes:
- All Class A voting shares and Class A non-voting shares of BWP (the top company) were transferred into the (plain) Common Stock (all voting, subject to placement in the Voting Trust, see later).
- All Class C stock (employee purchases since the Amalgamation) was transferred automatically into Common Stock on the basis of .85005 share of Common Stock for each share of Class C stock. (The author does not remember, and is not able to determine in the archives, how this exchange rate was set. A calculated guess was that the ratio was determined on the basis of the relative net asset value per share for each class of shares (which was a different calculation, as earlier described) as of June 30, 1979, on an internal unaudited basis, confirmed by the year end October 31, 1979 audit).
- Thirdly, in the future, employees would have the alternative (subject to all established policies for employee shareownership) of (1) purchasing Common Stock of the top company (as before) or (2) purchasing a “Unit” in the intermediate Holding company consisting of a (a) a $15.33 12% 20 year Subordinated Debenture plus (b) one common share of Holdings, valued on the then current net asset value per Holdings common share. The firm’s share purchase financing program with The First National Bank of Chicago continued to be available for either form of purchase.
The Unit alternative was presumably introduced to permit those employees who chose to receive current income from the debenture to help offset the installment loan repayment to the Bank, and thus have some reasonably assured percentage gain in interest income on the Debenture, and yet also participate, to a degree, in the equity growth of the BWP. However, the intermediate Holding company was generally more leveraged than BWP, and thus the chance for gain per share per annum was larger than at the BWP level, but at the same time, the chance for percentage loss per share was also larger.
Provision was also made in the Amendment for W-P to maintain its direct and indirect investment in BWP, on an annual adjustment basis, equal to 40% of stockholders' equity but not less than $31.9 million. In addition, a Voting Trust was established with The First National Bank of Chicago as Trustee into which employee shareholders were invited to place their BWP shares and into which W-P placed its common and preferred shares, and under which the Trustee took directions from beneficiaries in voting for Board members.
The Amendment also provided for a procedure whereby by W-P could, at its option, increase its interest from 40% to 50%, plus 100 shares in which case, however, the Voting Trust provided, in connection with the election of BWP Board members, at least 40% must be Senior Managers. Also, it might be noted that the 1974 Amalgamation Agreement provided that, in the event W-P followed the specified procedure for acquiring a majority ("controlling") interest in BWP, that any employee share purchases ("tenders") in that process would be a net asset value per share plus a premium (up to 40%) depending on the cumulative earnings to the date of such tender, from October 31, 1974. In the 1979 Amendment being reviewed, there was no provision for the payment of a "control premium" on any share purchases from employees that might be involved.
Given the substitution of the Note (paying interest) and Preferred Stock (paying a dividend) for equity shares, it might be assumed that W-P proposed the Amendment as a way to begin to receive a certain amount of cash flow for its investment in BWP in return for giving up an uncertain amount of equity gain (or loss) – and perhaps, as part of the package, to avoid the payment of a premium for absolute control.
The actual stockholders' equity of BWP as of October 31, 1979 was $43 million (up from $36 million one year earlier). Giving effect to the above amended transactions, W-P, as noted, owned a 40% interest, and, as noted, the Amendment provided for W-P, under certain conditions, to acquire more shares of BWP over time.
Ira Wender announced internally and by public press release, on or shortly after January 10, 1980, that "there was full agreement (by the employees) with Warburg and Paribas that the interests of all concerned will be best served by A.G. Becker and Warburg Paribas Becker continuing to be a U.S. firm, principally owned and managed by its employees."
The financial results for BWP for the fiscal year 1979, finishing October 31 of that year, were excellent, and quite a rebound from 1978. Revenues increased almost 50% to $213 million and net income before taxes to $12.8 million (including, however, in both amounts, just under $4 million in investment gains). Bottom line net income was $8.5 million (including after tax investment gains). Stockholders' equity bounced back to $43 million and capital funds to a little over $68 million. Footings increased to $2.8 billion. Repurchased stock during the year was $2.9 million (down from $7.6 million for the prior year), and stock issuance was $1.5 million (up from $900 thousand for 1978).
Net asset per share was $19.53 vs. $15.30 as of the prior fiscal year end (the latter amount having been adjusted for the stock split in 1978).
The Fiscal Year 1980
Sources of Information
The Becker story for 1980 will especially rely on archival materials, including information from the weekly BeckerBriefs, newspaper reports, and information about 1980 in the "Offering Brochure" through which BWP common shares and, holdings shares and units, were offered and sold to employees in early 1981. The author was on sabbatical starting in the late fall of 1980, working as a Research Associate at the Harvard Business School, updating the case content of the School's Investment Banking course. Even so, the author's memories of developments especially toward the end of the fiscal year are excellent.
Corporate Structure Again Revised
Fiscal Year 1980 was, in many dimensions - positive and negative - a turning point for BWP as the successor to the original A.G. Becker & Co., Inc. We will use BWP for the review of 1980, although the name "The Becker and Warburg-Paribas Group" was changed to "A.G. Becker - Warburg Paribas Becker Inc." as of January 1, 1981. Also, the name of the subsidiary of BWP owning the two main operating subsidiaries, A.G. Becker & Co., Incorporated and Warburg Paribas Becker Incorporated, was changed on January 1, 1981, from "BWP Holdings Incorporated," to "AGB-WPB Holdings Inc." In the past, as noted earlier, employee shareholders could invest in either BWP or BWP Holdings and that practice was continued with respect to both the newly named successor corporations. Generally, in this history forward, we will use Group, Holdings, and Operating companies(y) to denote the level of the corporate structure which is being discussed at any point.
New Ownership Proportions
The year started, as above described, with the 1979 capital reorganization, the result of which was that W-P owned 40% of the business, up from the earlier 20%, but not the 50% level originally provided for at this time. W-P did now own some fixed income securities which provided reasonably attractive dividend or interest income. Only those working in the business at the time, from the highest position in management, to the most lowly clerk in operations, could say what this amended ownership arrangement, if anything, had to do with the course of business and changes which took place during 1980.
Activities During Fiscal 1980
The overall structure of the consolidated firm's organization in 1980 substantially followed that of earlier years. On one side, AGB operations consisted of marketing and dealing in a wide range of fixed income instruments: short, intermediate and long term taxable securities of (1) corporate issuers; (2) federal government and agency issuers and federally guaranteed issuers; and (3) tax-exempt government and agency issuers; all with operations in the U.S., Europe, and Puerto Rico.
The other side of AGB involved individual (increasingly portfolio management oriented) and institutional brokerage (increasingly acting as principal), along with related investment research services; a wide range of dealer, exchange-based, execution and research services including now commodities-based services; a wide range of stock exchange floor brokerage and market making activities; a full range of investment performance measurement based services (with its own operations support); large operations and accounting staffs supporting a diversified range of investment services and transactions, including clearing services to a large number of exchange and over-the-counter market makers. AGB also had a proprietary, special trading operation.
WPB continued to provide the full range of investment banking services with many personnel and teams providing specialized services unique to certain commercial, financial, and industrial sectors, serving corporations and other entities both in the U.S. and abroad. WPB also housed the underwriting syndicate function involved in all aspects of the syndication of corporate securities underwriting.
The firm maintained a program of private investing, and providing investment banking services related to investing activities, under the Private Investments Services Group. In addition, the firm, through the subsidiary Mid-Continent Capital, a registered investment advisor, offered investment management services to substantial individual and family clients, and to selected pension and profit sharing portfolios.
The year was also marked with substantial employee growth, a high level of hiring, and a high level of officer promotions. For example, in late summer, some ten MBA graduates were hired into WPB.
In early January, 1980, a special edition of BeckerBriefs hit the desk of all employees. The issue was called "Links," the name of the earliest known internal newsletter of Becker circa 1921. The symbolism of a "tie which binds together the separate parts of the organization" was not missed. Along with the historical aspect, the publication was an authentic effort to boost teamwork. The publication had its own special look and acquainted the reader with a number of facets of Becker's business - the thrift industry specialization; the vintage 1979 year in the two European offices; the investment in Kipnis, and entry into the commodities business; a listing with photos of long time employees; and a photographic reminder of the summer outings at the Lake Shore Club which A.G. Becker himself used to host in the 1920s.
Managed and co-managed underwritings of taxable deals were in abundance. Managed or co- managed offerings totaled $3.3 billion in 1980 vs. $2 billion in 1979. Corporate underwriting participations grew to $930 thousand from $465 thousand. Private placements in 1980 totaled $615 million, a decline from the $1.3 billion placed in 1979. Even so, early in 1980, a prominent industry magazine reported that WPB had moved from 10th to 6th place in private placement activity between 1978 and 1979.
M&A transactions were witnessing good annual growth. Data on these transactions would likely take a good jump given WPB's role in September, 1980, advising the Sun Oil Company on its $2.3 billion acquisition of the Seagram Company's subsidiary, Texas Pacific Oil, along with counseling on the terms of $1.8 billion floating-rate notes of Sun issued to Seagram in the purchase.
The new office in Puerto Rico handled a number of successful local underwritings.
In May, Gerard Troncin joined the organization as President of A.G. Becker International, a new division of Becker formed to conduct the firm’s international securities distribution and trading activities. Troncin came to Becker from Merrill Lynch where he was director of international sales. Troncin was officed in Paris.
Investment Banking Very Active
Private placements were carried out for a range of companies including: Peoples Cable Company; Northwest Acceptance Corporation; Burroughs Wellcome Co.; TransUnion Leasing Corporation; Central National Chicago Corporation; Tri-Continental Leasing Corporation; Clark Equipment Credit Corporation; Skokie Federal Savings and Loan Association; Coast Federal Savings and Loan Association; International Paper Credit Corporation; and Northwest Industries, Inc..
Managed or co-managed public offerings were made of the securities including the following issuers: Naples Federal Savings and Loan Association; Industrial National Corporation; American Medical International, Inc.; City Federal Savings and Loan Association; Sea Containers Atlantic Ltd.; U.S.Home Corporation; Hadson Petroleum Corporation; Germania Federal Savings and Loan Association; Save-Way Industries, Inc.; Dorchester Gas Corporation; and Natomas Corporation;
Mortgage-backed bonds were placed for various issuers including Dade Savings and Loan Association; Bank of America; Bay View Federal Savings and Loan Association; and Coast Federal Savings and Loan Association.
Specialized financings were effected for Naperville Hotel Associates; Wisconsin Electric Power Fuel Trust; The Parish of Pointe Coupee; California Federal Savings and Loan Association; Chrysler Corporation; American Honda Motor Co., Inc.; Swiss Bank Corporation/Oversees Finance N.V.;
U.S. Government Guaranteed Ship Financing bonds were issued benefiting Lachmar; American President Lines, Ltd.; and the Ashland Oil, Inc./Falcon Shipping Group. Unique financing was completed for the Crowley Maritime Corporation Project. By this time, Bill Pope had become an expert in ship financing, and Becker, by business completed and international recognition, had become the leader in this unique form of financing.
The firm was involved in the following business consolidation arrangements: Hawker Siddeley Group’s acquisition of Fasco Industries, Inc.; Brooks-Scanlon’s merger with Diamond International Corporation; Cable America’s acquisition of DeKalb Cablevision Corporation; Lloyds and Scottish Limited’s acquisition of James Talcott Factors, Inc.; Robert Bosch Power Tool Corporation’s acquisition of the Power Tools Division of The Stanley Works; Liberty National Life Insurance Company’s acquisition of Globe Life and Accident Insurance Company; Wickes Companies’ acquisition of Gamble-Skogmo, Inc.; Sun Company’s acquisition of the U.S. oil and gas properties of the Texas Pacific Oil Company, Inc.; the Laird Group’s acquisition of the assets of the New York Twist Drill Corporation; the sale of Sun Company’s Duncan, Oklahoma refinery to Tosco Corporation; Field Communication’s acquisition of subsidiaries of Televents, Inc.; and the issuance by American Motors Corporation of equity securities to Regie Nationale des Usines Renault.
The above M&A transactions had a total value of some $3.6 billion, up six times over the level achieved in 1979. WPB's advisory role to American Motors and Sun Company deals were the primary transactions during the year.
In a way, the year 1980 was a celebration of the Becker absorption of Weil Pearson in 1965. Al Doughty, Bill Hale and Bob Nield all celebrated 15 years with the firm. Others also celebrated that bench mark including Bob Karlblom and Milt Walters. John Levy celebrated 20 years and it was 30 years for Stan Wirt.
Noteworthy by this period was a closer-than-ever collaboration between the money market and corporate finance activities of Becker.” The commercial paper business earlier had been extended into the distribution and dealing in short term bank notes (CDs), treasury bills and notes’ agency notes; and then, government and agency bonds, along with a substantial expansion into corporate bonds. Later, the diversification of the money market business extended into the distribution of and dealing in a variety of securities which involved corporate finance evaluation and/or origination -- bank holding company notes, savings and loan association short and intermediate notes; mortgage pass-through bonds; ship financing bonds; utility and related trust funding; foreign bank notes; and real-estate bonds, for example. This diversification was mirrored in the investment banking specializations that were being established during this period.
The excellent operating results through April led management, in June, to approve a midyear 3% profit sharing bonus, as was the practice in former years when business was good.
Early in the year, Don Trott took over as Director of Investment Research. Various research analysts, such as Fred Hoffman, Kay Reardon, Dave Snow, Bob Christensen, Bob Chaut, and Don himself, were regularly quoted in the New York Times. Representatives of the Funds Evaluation staff were giving speeches to various groups and being steadily quoted in the Tribune and Times.
John O'Brien, well known in the financial technology field, joined the Funds Evaluation Group to start up an investment performance research program.
The New York Futures Exchange was started up and organized by Becker alum Bill Smith, as President. As in the case of the CBOE, AMEX and Philadelphia Exchanges, Becker personnel were heavily involved in the early operations of this new derivatives exchange.
In late September, commercial banks were authorized to distribute commercial paper. The Securities Industry Association joined by Becker - and supported by the SEC - sued Bankers Trust. (Later, in 1982, the case was ultimately adjudicated favorably to the SIA and AGB, and then on appeal, unfavorably reversed, and ultimately banks were authorized to deal in commercial paper with institutional purchasers).
Despite the successes of the year, cracks were beginning to show in top management communications and relations. In mid-September, 1980, John Wing left the firm. Nominally, per BeckerBriefs, Jack left "for personal reasons." The Chicago Tribune, however quoted Jack as saying he resigned "for personal reasons relating to policy differences."
The author was living in Nantucket at the time, about to begin a sabbatical and commuting regularly to Boston to complete his course development project at the Harvard Business School. While in Nantucket, the author received a phone call from Ira Wender reporting that he fired Jack by requesting his resignation. The author was quite taken back by this report, expressed his disagreement, and suggested that the matter should be reviewed by the Board of Directors. Ira disagreed, saying that the action was within his authority as CEO, and that he had the backing of W-P. He admonished the author to keep his thoughts to himself.
After Wender's call, the author phoned Jack Wing and was advised by him that he had come to the point that he could no longer accept Ira's management style. After some breathing room, he looked forward to considering various alternatives. Fairly shortly, Jack was invited to become a primary investor in and Chief Executive of The Chicago Corporation, the small Chicago brokerage firm that, a few years back, Don Pearson had joined for a period. Jack accepted ChiCorp's invitation and went on to build that enterprise into an upper-medium sized and more diversified firm. After some years under his leadership, ChiCorp was sold to ABN AMRO for about $239 million.
Either somewhat before or after Jack Wing's departure, John Mabie, long with Becker and founder and head of Mid-Continent Capital (per earlier), and Ronald Grierson, who joined WPB as an officer in April and who was for many years connected to Warburg in London, joined the BWP Board.
It should also be mentioned that in 1979 Wender hired Michael (“Mike”) Hilton to undertake financial planning in the President’s office. Hilton, a public accountant, began his business career with Price Waterhouse. Before Becker he was a co-general manager of a firm brokering specialized corporate insurance instruments to institutions. In 1981, Hilton was elected a Senior Vice President and became a member of the Operating Committee. In June 1981, it was announced in BeckerBriefs that Hilton had taken over “treasury, regulatory accounting, tax determination-preparation, and office services.” He later claimed to have been the Chief Financial Officer of Becker and "involved in all facets of credit review."
In a similar move, as earlier reported, in late 1978, Wender hired William P. (“Bill”) Kane, Jr. as marketing assistant and then Director of Marketing. Kane’s job was to assist the President in evaluating the firm’s organization and functioning, with emphasis on marketing. In May, 1980, per BeckerBriefs, Kane was elected a Senior Vice President of A.G. Becker with senior management responsibilities for Institutional Marketing activities. In June, 1981, Kane became Deputy to John Levy, who then was head of Brokerage Services. In June, 1982, when Kane was quoted in the New York Times, he was identified as being Manager of Becker’s Equity Division.
Shortly after Jack Wing's departure, perhaps on the recommendation of Warburg and/or Paribas, John W. (Jack) Hyland joined the firm as Vice Chairman of the AGB and WPB Boards of Directors, and as a Director of BWP. Hyland had been with Morgan Stanley since 1962 and most recently was deputy director of Morgan Stanley's international business.
In connection with Kane's and Hyland's joining the firm (and possibly one of the reasons for Jack Wing's leaving), Wender announced the creation of the Office of the Chief Executive ("OCE") with himself as President and CEO; Jack Donahue as Deputy Chairman; Daniel Good as Senior Vice Chairman; and Jack Hyland as Vice Chairman, coordinator, and secretary of the OCE. The announcement went on to report that the new OCE would replace the Management Committee , and that a Policy Committee, consisting of the OCE plus Bill Cockrum and Fred Moss, would meet periodically to review and determine matters of policy. The announcement went on to report that an Operating Committee would soon be formed consisting of the senior manager of the principal businesses and support groups.
Board of Directors, Committees, and Management - Going Into 1981
On October 31, 1980, the Board of BWP was composed of eighteen persons. The composition of the Board is captured in a photograph of that time. From left to right, standing in front: Geoffrey Seligman; John Hyland; David Scholey; Ira Wender; Pierre Haas; Dan Good; Fred Moss. Standing behind, left to right: Rudy Peterson; Paul Judy; Ronald Grierson; Francois Morin; Jack Donahue; Michel Francois-Poncet; John Mabie; and Bill Cockrum. (Herve Pinet, Barry Friedberg, and Peter Darling were absent).
As shown in a diagram in the 1981 Offering Brochure, under the Board of Directors was the Executive, Audit, Compensation, and Senior Advisory Committees. Under the Executive Committee was the Office of the Chief Executive ("OCE"), General Counsel, and Secretary to the OCE. Under the OCE, was the Operating Committee (business unit managers and OCE members), Policy Committee; and "Other Committees." To many observers, this structure looked complicated and bureaucratic, and led in due course to the question "who had the authority to do what."
Consolidated revenues for the fiscal year ended October 31, 1980 leapt 50%, from $209 million to $315 million (in each case not including $4 million and $19 million, respectively, in investment gains). Net income before taxes (again not including investment gains) grew from $8.9 million in Fiscal 1979 to $13.0 million in 1980. Including investment gains for each year, net income grew from $8.5 million to $20.7 million. Stockholders' equity grew from $43 million at the end of Fiscal 1979 to $73 million one year later. Capital funds grew from $56 million to $97 million. Consolidated footings as of October 31, 1980 rose to just short of $5.2 billion, up some 85% over the amount of $2.8 billion a year earlier. Generally, greater risks were being taken.
Net asset value per share at Fiscal 1980 year end was $26.79 vs $19.53 a year earlier.
Just before fiscal year end, the then Management Committee approved a 7% profit sharing bonus to all employees, augmenting the action in June, but not replacing the normal cash plus profit sharing bonuses payable in January to managers and supervisors based on fiscal year results by unit.
Employee and office count
As of October 31, 1980, AGB-WPB and subsidiaries had 2,386 employees, including 658 officers, as compared with an average of 2,126 and 506, respectively, for the prior four years.
As of October 31, 1980, AGB-WPB and subsidiaries had offices in eighteen cities, including Albany, Atlanta, Boston, Chicago, Cleveland, Houston, Los Angeles, Minneapolis, New York, Philadelphia, San Francisco, and Sun Valley (N); and internationally, Buenos Aires (N), Geneva, London, Paris (N), San Juan, and Toronto. ((N) = new in 1979).