A Bear Market for Brokers

THE stock market looked somewhat more cheerful last week than when the Dow-Jones industrial average scraped its late-May low of 631, but Wall Street's brokers were still gloomy about their own private profit squeeze. In the long bear market, the brokerage houses suffered more severely than most of the firms in whose shares they deal. The capital-to-debt ratio of three out of the 25 largest brokerage houses was so low in recent weeks that the New York Stock Exchange has been pressuring them to trim expenses by dropping employees and reducing salaries. Many firms have laid off 10% to 15% of their staffs without announcement, and young men are leaving the Street to look for more secure jobs. Several firms are trying to save money by subletting some of the space in their new, more expensive quarters. The price of a seat on the exchange, which is a sensitive index of the profitability of the brokerage business, has fallen to $170,000 from a high of $515,000 one year ago.

Sensible Match. Wall Street's depression has also led to a rash of merger discussions; strong firms are trying to acquire weaker ones, and undercapitalized houses are wooing those that are better financed. During the 15 months ending April 1, the number of New York Stock Exchange member firms declined from 646 to 612, largely through mergers. Recently, Dean Witter & Co. agreed to take over San Francisco-based J. Barth & Co., and Clark, Dodge acquired the West Coast brokerage firm of Irving Lundborg & Co. Last week Halle & Stieglitz announced that it would take over five offices of Orvis Brothers & Co. in the Manhattan area, and Charles Plohn & Co. said that it would economize by transferring its stock-clearing operations to Axelrod & Co.

In one of the biggest deals of all, Francis I. du Pont & Co., which had a $7.7 million operating loss last year, agreed to merge with Glore Forgan Staats, Inc. Du Pont, the U.S.'s third largest retail brokerage house, offers a valuable distribution system--a national network of offices with many customers--for the new securities issues that are a major part of Glore Forgan's business. As a cost-saving measure, Du Pont in the past year has been forced to pare back from Ill. branch offices to 95; it will now absorb 20 Glore Forgan offices. More important, Du Pont will add some $18 million to its $62.5 million capital--an infusion that it sorely needs. Though Du Font's 13-to-l ratio of capital to liabilities is well within legal limits, it is right at the point where the New York Stock Exchange begins to take an active interest in a firm's problems.

Concerned Chairman. The hard-pressed brokerage houses are also getting help from the stock exchanges, which plan to begin cooperating closely for the first time. Last week Robert

Haack, president of the aristocratic New York Stock Exchange, and Ralph Saul, president of the younger and more innovative American Stock Exchange, announced a program to end much costly duplication. Under the new plan, the two exchanges will share many of the same computer facilities, and Amex stocks will be included in the Big Board's central certificate service, an automated system for handling stock transactions. The cooperation will extend down to the clerical levels and may eventually result in a merger of the two exchanges. Economic necessity forced the moves --the exchanges have also been hurt by the bear market. But by reducing costly paperwork and increasing efficiency, the changes should aid the brokerage houses as well.

For all this help, some weaker brokerage houses are still likely to go under. Last week Hamer Budge, chairman of the Securities and Exchange Commission, said that at least 35 houses have failed in the past two years. Others that are now vulnerable include houses that have part of their own capital invested in speculative stocks--a risky practice that the SEC might do well to curb. Budge spoke out strongly in favor of proposed legislation to create a federal insurance corporation for brokerages along the lines of the Federal Deposit Insurance Corporation for banks. Congress seems eager to set up something of the sort to prevent investors from getting stung if their brokerage houses go over the brink. Thus, for all the pain it has caused, the long bear market may lead to new rules to protect the investor, and establish a stronger and better-run brokerage business.

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