L. F. Rothschild, Jolted by Losses, to Merge With Kansas S&L; Unit

Times Staff Writer

The October stock market crash claimed another victim Monday as L. F. Rothschild Holdings, a once high-flying brokerage firm, agreed to be merged into a unit of Franklin Savings, an Ottawa, Kan., savings and loan.

Rothschild, which was founded in 1899 and is not related to the European banking dynasty of the same name, had been plagued with management upheaval and was struggling for survival even before Black Monday, Oct. 19.

The firm's fate was sealed during the crash, when Rothschild was hit with $56 million in arbitrage and over-the-counter trading losses; Rothschild lost another $15 million when a firm with which it did business went bankrupt.

All told, Rothschild posted a staggering net loss of $128.8 million for the fourth quarter of 1987 on total revenue of just $32.5 million. The firm has cut about 1,000 jobs, leaving 1,200, since October, selling off or shutting down retail branches and withdrawing from the public finance and municipal bond trading businesses. Further job cuts are expected.

'Best Deal'

On Monday, Franklin, which has $9 billion in assets, pumped $30 million in new capital into the ailing Rothschild. Franklin owns a pair of regional brokerage firms in Missouri and Texas and hopes to integrate their operations with Rothschild's.

In addition, Franklin agreed to give Rothschild shareholders an as-yet-undetermined amount of cash and preferred stock based on the firm's adjusted book value at closing. Rothschild's stock, which went public at $20.50 in March, 1986, closed Monday in New York Stock Exchange trading at $3, down 87.5 cents.

The deal is "the best that could have been obtained for Rothschild's shareholders and employees," said Perrin Long, an analyst with Lipper Analytical Services. "Rothschild had been slipping downhill for at least a year and a half."

Employees reached Monday said they were relieved that the firm had found a buyer. "There's some uncertainty about the future but less than before," said a securities analyst who asked to remain anonymous. "The mood is good."

When asked about how the Wall Streeters felt about being rescued by a firm from Kansas, he replied: "They've got money and they've got brains. Who cares where they are from?"

"I'm from Youngstown, Ohio, myself," added Rothschild general counsel Douglas M. Libby. "I think it's great."

Power Struggle

L. F. Rothschild came to prominence during the hot new issues market of the early 1980s as one of the "Four Horsemen," boutique brokerages that specialized in underwriting stock of emerging technology companies.

At the time. the firm was known as L. F. Rothschild, Unterberg, Towbin. But its technology specialists, Thomas I. Unterberg and A. Robert Towbin, left abruptly after losing a power struggle in late 1986 and now head up Shearson Lehman Hutton's technology group.

At issue was whether the firm should diversify outside of the cyclical new issues market, a struggle won by co-chief executives Robert Schoenthal and Francois J. P. Mayer, who urged the diversification.

But observers and former employees said the effort was ill-timed, poorly executed and costly, and when the market crashed and business dried up the firm's capital and credibility dwindled rapidly.

On Monday, Ernest M. Fleischer, Franklin's 56-year-old chairman, said "the merger of L. F. Rothschild and Stern Brothers & Co. (Franklin's Kansas City-based brokerage unit) will form a unique investment banking combination. It brings together the advantages of a New York trading desk and regional distribution."

Fleischer, who formerly practiced law, was approached about acquiring Rothschild last November by Salomon Bros., one of Rothschild's investment banks.

FOR THE RECORD Los Angeles Times Wednesday February 24, 1988 Southland Edition Business Part 4 Page 2 Column 3 Financial Desk 1 inches; 32 words Type of Material: Correction In one edition of Tuesday's Business section, an incorrect name was given for the Kansas-based financial institution that is buying the New York stock brokerage of L. .F. Rothschild. The correct name is Franklin Savings Corp.
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