After an eight-year run, Peter Griffith is leaving his job as head of capital markets (investment banking) for Wedbush Morgan Securities to return to the ranks of certified public accountants at Ernst & Young LLP, from whence he came.

Actually, Griffith will lead a new downtown office for Ernst & Young, called the Center for Strategic Transactions.

“We will help chief executives, and business owners, choose the best strategic alternative for themselves and their company,” Griffith said. “Whether it be an initial public offering, a secondary, merger or stock swap, or even doing nothing.”

In contrast, Wall Street firms tend to be product driven, and so sometimes owners are pushed into decisions that might be good for a brokerage such as an IPO but not the best decision for the business (although Griffith quickly added that this was not the case with his former employer).

Replacing Griffith at Wedbush will be Michael Gardner, head of research there for four years, and a former banker at Security Pacific. The Claremont grad has been boosting research operations, and plans to do the same for Wedbush’s investment banking efforts.

“Basically, we want to increase the deal flow,” Gardner said. “I want to establish Wedbush nationwide as the expert on the California economy in our areas of expertise: health care, technology and consumer products.”

Getting the Wedbush name out in the national financial media is part of the effort, said Gardner, who officially assumes Griffith’s duties Oct.1, when the latter leaves.

Meanwhile, there is talk about a major restructuring at Donaldson, Lufkin & Jenrette’s big Century City office, where more than 100 bankers hang their hats.Ken Moelis will remain in charge of the office, but several major new groups are being formed.

And, we have confirmed that Mark Tabit, former branch manager for Prudential Securities Inc. in Century City (the most profitable West Coast office for Prudential), has become regional development manager, in charge of the brokerage’s 330 brokers.

“My territory is from Santa Barbara, to Long Beach, and inland to Palm Springs,” said Tabit, 37.

Getting even more brokers signed up is job No. 1 for Tabit. “We will hire fresh and train, and we are looking at quality people from other brokerages,” he said.

REIT-a-Rama

The real estate investment trust industry is booming on Wall Street, but a bigger boom is still to come, said Scott Wendelin, financial industry investment banker with Sutro & Co. Inc. in West Los Angeles.

Hitherto, the bulk of REITs traded on Wall Street such as Los Angeles-based Alexander Haagen Properties Inc., or Beverly Hills-based Arden Realty Inc. have invested in real property. The next wave will be REITs that invest in mortgages, predicted Wendelin.

“There is an almost unlimited demand for REITs which hold mortgage assets,” said Wendelin. “It’s tough to sell an S & L; or a mortgage banker on Wall Street, but mortgage REITs have been selling out.”

Investors like the relatively hefty 8 percent to 9 percent returns the mortgage REITs offer, said Wendelin. Too, the REITs are perceived as safe.

There is potential for appreciation in two ways interest rates could drift down (increasing value of mortage in portfolio); or a REIT can issue additional stock, which is used to buy more mortgages. The additional purchasing of mortgages can be “accretive,” or add value to existing shareholders, Wendelin said.

Wendelin, and his assistant Andrew Murray, are co-underwriting three new mortgage REIT IPOs currently, including Apex Mortgage Inc., which will be managed by an affiliate of big downtown money manager Trust Co. of the West (TCW). The plan for Apex is to issue $150 million in stock, then borrow about $1.4 billion, and buy residential mortgages. They plan to make money on the spread between borrwing costs, and the yield on mortgages.

Currently, there is about $30 billion worth of mortgage REITs traded on Wall Street, Wendelin said. “I expect that number to grow to $100 billion in one year,” he said.

Wendelin said that the total pool of real estate mortgages that could be securitized on sold on Wall Street approaches $2 trillion. “It’s not a problem of supply,” he said. “It’s a problem of having enough time to do it.”

Said Wendelin’s assistant Andrew Murray: “We are doing all that is humanly possible now.”

One gets the impression some midnight oil is being burned at Sutro.

Buffett’s cold feet?

Local money managers, including Bill Mason, principal at the Woodland Hills-based Cullen Fortier Asset Management, are still buzzing about the reported purchase by Omaha-based Berkshire Hathaway Inc. read “mega-investor Warren Buffett” of $2 billion worth of Treasury “strips” bonds, also known as zero coupon bonds.

The bonds do not pay interest and are sold at a deep discount to face value. Right now, about $1,000 worth of 25-year Treasury strip bonds can be purchased for $200 the bonds won’t mature for 25 years, and pay no interest in the interim, although they can be traded.

The Treasury strips are acutely sensitive to moves in long-term interest rates. “A 1 percent decrease in long-term interest rates translates into about a 25 percent increase in the value of the Treasury strips,” Mason said.

For Mason, Buffett’s purchase is a signal that he might not expect great guns from Wall Street blue chip stocks, at least for now.

“The question is, ‘Why didn’t he buy Coca Cola or Gillette?’ ” he said, referring to two favored Buffett stocks. “Both those stocks are more than 25 percent off from their highs. In a sense, the world’s greatest investor thinks bonds will beat the market.”

Mason noted that Buffett’s stance is not necessarily bearish. For one, with many billions of dollars under management at Berkshire Hathaway, Buffett is effectively precluded from buying much in the way of small capitalization stocks.

“He could buy small caps, but not enough to make a difference,” said Mason. (In order to assemble a meaningfully sized portfolio of small cap stocks, Buffett would have to research literally hundreds, possibly thousands, of companies on an ongoing basis too time consuming for the expected returns.)

So Buffett may well believe that a bull market in small caps is due; he just can’t effectively buy into it (and indeed, last week the Nasdaq composite and the Russell 2000, both indicators of small cap performance, were at or near all-time highs).

But Buffett’s stance is possibly bearish, cautioned Mason. “In 1968, he sold out of all of his stocks, and walked away from the market,” said Mason. “But that is not an option now, with such a big portfolio.”

In a sense, Buffett is strapped were he to start selling Coca Cola, or some of his other major stock holdings, he would torpedo the market for those stocks before he could liquidate his stake. “A lot of people only bought those stocks because Buffett bought them,” Mason noted.

By buying the $2 billion in Treasury strips, Buffett insures he will get $10 billion in 25 years, if interest rates are steady, and a lot more if rates fall.

“He has sort of vaccinated his portfolio,” said Mason, who is long-term bullish that inflation, and interest rates, will go down. “Even if the stock market go done, he will collect on the Treasury strips.”

Contributing Reporter Benjamin Mark Cole writes about the L.A. investment community for the Los Angeles Business Journal.