2 L.A. Brokerages, Wedbush and Morgan Olmstead, Consider Merging

Wedbush Corp. and Morgan, Olmstead, Kennedy & Gardner Capital Corp., two independent Los Angeles securities brokerages with contrasting recent fortunes, said Monday they are discussing a possible merger.

A combination, if completed, could enhance Wedbush’s stature as one of the largest and best managed independent brokerages on the West Coast, while possibly providing help for the smaller Morgan Olmstead to expand and overcome losses and other recent woes, industry experts said.

It also could signal a trend toward consolidation of brokerages suffering cost and profitability pressures in the wake of the post-crash slowdown in securities markets. Earlier this year, for example, troubled L. F. Rothschild Holdings agreed to be acquired by Franklin Savings Corp. of Ottawa, Kan. And following the October stock market crash, E. F. Hutton put itself on the block and was acquired by Shearson Lehman Bros.

Smaller firms have been hit harder by the slump, because some have not been as diligent at cost controls and aren’t as automated as big firms, said Perrin Long, brokerage industry analyst at Lipper Analytical Securities in New York.

“We could see more of (these mergers) as the year wears on, if the environment doesn’t get any better,” Long said.

Ronald J. Consiglio, Morgan Olmstead’s chief financial officer, said in an interview that his firm initiated the merger discussions and they could result in a decision within the next two to four weeks.

“We are taking a look at what the two firms can do together, and our ability to expand with a bigger capital base,” he said.

Although both firms are full-service brokers engaging in a wide range of services and trading activities, Wedbush is best known for its securities clearing operations for other brokerages. Morgan Olmstead has focused recently on expanding its investment banking and corporate finance activities, seeking to become the dominant regional investment bank in Southern California.

However, Morgan Olmstead--with $17.2 million in capital, compared to about $60 million at Wedbush--has been stymied by a series of operational and legal problems since it went public in July, 1986. Recent woes at Morgan Olmstead include losses relating to trading improprieties and uncollectible accounts, and the resignation of its disgruntled president after less than a year--problems that company official Consiglio said are behind the firm now.

The firm also has suffered from stiff competition from other regional brokerages and giant New York investment houses, analyst Long said.

“For all intents and purposes, Morgan Olmstead is in need of better management and could use more capital,” he said.

Morgan Olmstead lost $1.2 million in this year’s first quarter, which it blamed on slow business resulting from market volatility and investor uncertainty. That followed a loss of $422,000 for all of 1987.

Privately held Wedbush, on the other hand, is believed to be profitable and is conservatively run under Chief Executive and President Edward W. Wedbush, who was traveling and could not be reached for comment Monday. “They have a very good operation; they have good control of expenses,” Long said.

Employees expressed concern over which jobs would survive a possible combination, since there are many areas of duplication. “It could work out to enhance both situations,” said one Wedbush employee. But some workers, particularly in clerical areas, may lose jobs in a combination, he said.

Wedbush employs about 600, about twice the number at Morgan Olmstead.