Big shake-up at the Bear, Stearns & Co. securities brokerage in Century City: Andy Haas, 18-year veteran and managing director on the retail side there since 1988, has been replaced by David Pollack, a stockbroker with 10 years at the firm.
Haas last week confirmed that he had stepped down from his managing director post, but will continue with Bear, Stearns as a stockbroker. While Haas declined to elaborate, one well-informed source said Haas wants to spend more time working with clients, and less on administration.
Maybe so, but the move last week caused a buzz in Los Angeles stockbroker circles, with some saying it represents a changing of the guard at Bear, Stearns, which has been perhaps the most stable of the national brokerages.
The Westside office is Bear, Stearns’ largest retail commission producer outside New York, with 70 stockbrokers servicing upscale clientele. So the Haas move is seen as quite significant.
“A lot of the guys there just have gotten older. … They have long been a transaction firm, and the top names tend to stay there,” said one branch manager at another brokerage.
Russ Sherman, a spokesman for Bear, Stearns in New York, would only say, “It is accurate that Andy Haas is stepping down, beyond that we have no comment.”
Those at Bear, Stearns make their money on commissions trading stock for customers, the old-fashioned way. By contrast, other large brokerages, led by Merrill Lynch, are moving toward systems in which brokers are paid a percent of the dollar amount of accounts under management, sometimes called “fee only.”
As a whole, the New York-based firm has made its real money in the 1990s by trading bonds for institutions, investment banking, and acting as a clearinghouse (executing trades) for smaller brokerages.
In terms of retail business, Bear, Stearns is in a tough row discount firms and online trading outfits under-price it, and American Express is even offering free online trading for certain minimum-sized accounts. And the really big boys, such as Morgan Stanley Dean Witter and Salomon Smith Barney, have huge ad budgets and market presence. Yet Bear, Stearns is too large to really position itself as a boutique brokerage with lots of personal service.
“Bear, Stearns hasn’t adapted to the Internet age,” said a branch manager at a rival firm. “Commissions are disappearing. In retail, they (Bear, Stearns) make money on commissions. You figure it out.”
But switching over to the Merrill Lynch model brokers on retainer, paid according to accounts under management isn’t a panacea either.
Recently, five of the biggest producers in Merrill Lynch’s Century City office Ed Stanton, Paul Berman, Jay Marshall, Lemuel Daniels and Steven Levine have left to join Prudential Securities in Century City or Salomon Smith Barney downtown, some for bonuses that equaled 120 percent of annual compensation.
Prudential still pays brokers by commission, and is long known for raiding other brokerages for senior brokers with “big books” of business.
Merrill has been bleeding its major producers for two years a cost of the change in strategy to fee only but the brokerage is immensely profitable anyway.
By not going the Merrill Lynch route, Bear, Stearns has had less stockbroker turnover, and one insider said the retail business has been very good. Of course, this is the boom-boom ’90s.
Red takeover
Some small-cap investors may have felt twinges of concern upon learning recently that Newport Beach-based Cruttenden Roth has purchased Portland, Ore.-based Red Chip Review.
The big question is, will Red Chip Review, which has provided independent analysis on up to 200 small-cap stocks for the last seven years, become tainted by association with a brokerage?
It’s well known that brokerage analysts are under heavy pressure to cover investment banking clients, in a world where to “cover” means to put out a “buy” signal.
Cruttenden Roth Chairman Byron Roth emphatically stated last week that Red Chip research will remain pristine.
“Their analysts remain independent. What we are doing is taking the content and putting it online, along with our own research and the research of other brokerages who want to align with us,” said Roth.
He said analysts will cover Cruttenden Roth investment banking clients “only if they want to.”
He plans to finance a boost in Red Chip research so that it can direct more coverage to “the new economy,” which largely means the Internet. Roth plans to boost the combined Red Chip-Cruttenden coverage to 500 companies, up from the current 300.
The implacable and growing problem facing all small-cap companies, underwriters and investors is the mounting preference for blue chips by both a consolidating brokerage industry and a burgeoning mutual fund sector.
“With so many of the brokerages merged, the brokerage analysts only want to cover blue chips,” said Roth.
There is no sense in a Salomon Smith Barney analyst putting out a “buy” on stock with a float too small to handle resulting investor interest. And mutual funds, with their billions to invest, can only afford to research larger companies blue chips again.
“We hope that by putting coverage out on the Web, along with that of other brokerages, we can enlarge the appetite for small and mid-cap stocks,” said Roth.
Roth has his work cut out for him. Since the start of 1995, the Russell 2000, an index of the 2,000 stocks after the 1,000 largest, has risen only about 83 percent. The S & P; 500 has risen more than 200 percent. This year, the blue-chip index is up more than 15 percent, while the small-cap barometer has risen just 9 percent, as of last week.
Contributing Columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].
