L.A. Brokerage to Buy San Diego Securities
Potential money problems generated by last week’s stunning stock market crash have forced the sale of San Diego Securities Inc., the county’s largest independent stock brokerage firm, to a Los Angeles-based brokerage, the company said Wednesday.
San Diego Securities, which handles about 4,000 retail accounts, will become a subsidiary of Los Angeles-based Thomas Green & Associates after the deal is completed next week, according to Jose A. Arvizu, Green’s chief financial officer.
Accounts Not Jeopardized
Arvizu, who would not discuss the purchase price, said client accounts at San Diego Securities “already have moved under our umbrella.” Accounts were not jeopardized by the local brokerage’s potential problems because of insurance required by the federal government, San Diego Securities President Michael Collins said.
The privately held San Diego brokerage firm agreed to sell its assets to Green because of potential money problems “on the horizon” resulting from the record 508-point plunge of the Dow Jones industrial average on Oct. 19.
Averting Potential Trouble
“Because of trading positions and margin calls, we could see a real (cash) strain on the horizon, and we decided not to wait around,” Collins said.
Margin calls often occur during market declines when the equity in a client’s account falls below a required level. The calls can create cash problems for brokerages because the firms sometimes must use their own funds to make good on clients’ stock purchases made on credit.
Collins maintained that the 19-year-old firm was not experiencing an immediate cash crunch. Federal regulators did not order the sale, he said.
Brokerage firms around the country have been reporting capital problems in the wake of the market crash. Some of the nation’s larger brokerage houses already have reported huge losses, and nearly a dozen small brokerages and so-called “specialty” firms have been forced to close or sell.
San Diego Securities, a small brokerage house with offices at 1200 3rd Ave. downtown, in La Mesa and in Rancho Bernardo, grew concerned about a potential cash-flow problem within days after the crash, Collins said. The firm was unable to track trades accurately because of paper work delays caused by several days of record trading volume, he said.
No other San Diego-based brokerage firms have reported cash problems so far.
Moved Fast on the Deal
Negotiations leading to San Diego Securities’ asset sale began last week and the preliminary agreement was executed during the weekend, according to Arvizu.
A “third party” brought the two companies together during the middle of last week, according to Collins and Arvizu. Industry observers speculated that the deal was arranged by Broadcort Capital Corp., a subsidiary of New York-based Merrill Lynch, which handles stock transactions for both San Diego Securities and Green.
San Diego Securities customers “won’t notice any difference in how their accounts are handled, because we both use Broadcort,” Arvizu said. “The forms will look the same; it will be business as usual.”
Observers on Wednesday suggested that San Diego Securities would have had difficulty growing without a new source of cash.
“We’d obviously have preferred to (be acquired) under more favorable circumstances but the (market) accelerated things fairly dramatically,” Collins said.
Most of San Diego Securities’ stock is owned by Collins and Thomas Mullen, the firm’s chief operating officer. Additional stock is held by other employees. However, the value of that stock has been thrown into doubt because the firm’s creditors must first be paid from money raised by the sale.
Combined Revenue of $9 Million
The combined firms would generate about $9 million in 1987 revenue, according to Arvizu, who declined to comment on earnings. The two firms would have a combined total of about 50 brokers. No layoffs are anticipated, Arvizu said.
Green, which opened its doors in 1952, formerly was known as Merrill Luther & Kalis. Thomas Green, a Los Angeles businessman, acquired the firm in 1983; the name was changed to Thomas Green & Associates in March.
The company’s headquarters are in downtown Los Angeles and the firm recently opened a branch office in Yucca Valley, near Palm Springs.
