A Year Later, Injuries From the Crash Linger : Although Some S.D. Companies Have Recouped Losses, Others Have Found the Going Rough
TCS Enterprises founder and Chief Executive Tom Stickel has ample reason to remember the stock market crash on Oct. 19 last year.
TCS Enterprises, the San Diego-based financial services company that completed an initial public offering in 1985, “got the heck knocked out of it,” Stickel said last week. “We dropped from about $6 down to about $3, and the market has not yet pulled us up again.”
Stickel, who owns about 40% of TCS’ shares, also saw his personal wealth shrink as the Dow Jones Industrial Average fell by a record 508 points. “I took a paper hit of anywhere from $2.5 to $3 million,” he said.
The crash brought the initial public offering of another San Diego company, Emerald Systems, to a dramatic halt.
‘At a Critical Point’
“Our prospectus had been mailed, we’d received SEC clearance, we were well into it,” said Emerald Systems spokeswoman Karina Lion. “We were really at a critical point for a company undertaking a public offering.”
But a stock offering was not likely to succeed in the post-crash environment, Lion said. “It was a textbook example of the kind of a situation where you just put it on hold.” It is still on hold.
For Quidel Corp., which had postponed its IPO several months before Oct. 19, the crash had a dampening effect on a then-uncompleted venture-capital round.
“We were flying very high, on our way to completing (the latest round of financing), and when the crash hit, we had to work very hard to close,” Quidel Chairman Joseph Stempler said.
Quidel raised $13 million in proceeds from that venture-capital round. “We have the capital we need, but I wish we could have closed on the 18th of October,” Stempler said. “That would have been perfect timing.”
DOW OFF 508!
Panic Rocks Wall Street
Index Off 902 Since Oct. 2
-- Newspaper headline on Monday, Oct. 19, 1987 WALL STREET WILD!
Final Dow: Up 102
-- Newspaper headline on Tuesday, Oct. 20, 1987 It has been a year since newspaper headlines screamed the news of the largest single-day percentage loss in history for the Dow Jones Industrial Average.
Mirroring a national trend, the crash hit harder at San Diego’s smaller capitalization stocks such as TCS, according to Irving Katz, director of research for Thomas Green/San Diego Securities.
The crash also closed the window for emerging companies such as Quidel and Emerald Systems that hoped to complete initial public offerings soon. And it dampened the enthusiasm of many individual investors.
“The market is treading water,” said Katz. “The stocks that go up one day usually lose their gains over the next couple of days--unless they’re a candidate for a takeover or merger.”
“With the exception of Agouron Pharmaceuticals, the biotechs have performed very poorly,” Katz said.
Agouron, which closed at $11 on Oct. 19, was selling for $13 as the stock market closed Monday of this week. But Molecular Biosystems, which fell $4.125 to $9.125 on Oct. 19, and Synbiotics, which fell $2.25 to $6, have been unable to recoup lost ground. Molecular Biosystems closed Monday at $12.75, and Synbiotics closed at $6.
S&Ls; Affected as Well
San Diego’s savings and loans have also felt lingering effects of the crash.
Great American First Savings Bank, which closed down $2.625 at $12.875 on Oct. 19, closed Monday at $11.625. Home Federal Savings & Loan, which closed down $3.75 at $27.75 on Oct. 19, closed at $25 on Monday.
Similarly, technology stocks, except for those with unusually strong earnings, have been unable to escape the myopic market, Katz said.
Strong Recoveries
Some companies have staged strong recoveries: Rohr Industries, which fell $12.875 to $20 during the week ended Oct. 19, has traded at about $32 in recent weeks.
San Diego Gas & Electric, which closed at $32.75 a week before the Oct. 19 crash, closed Monday at $35.375. However, industry analysts believe that SDG&E;’s strong performance in recent weeks is linked to an unwanted takeover bid by SCEcorp, the Rosemead-based parent company of Southern California Edison.
Price Co., which closed at $46.50 on Oct. 13, 1987, fell $7.50 in the week before the crash. It fell an additional $7 on Oct. 19, hitting $27.50. Its stock has slowly gained back most of that loss, trading in recent weeks at about $40.
La Jolla-based Intermark and its 41%-owned Triton Group subsidiary, both of which were hurt slightly by the crash, have performed well in the past year, Katz said.
Late last October, as other companies rushed to buy back their stock, WD-40 President John S. Barry laughed when asked if the company would initiate a stock repurchase program.
“Our business is selling WD-40 and making a profit in the process,” Barry said. Sticking to that business plan, WD-40 has regained ground lost a year ago. WD-40 closed Monday at $32.75, just $.25 below its Oct. 12, 1987, close.
The crash and a weak earnings report caused WD-40 to lose $6.25 in the week ended Oct. 19.
San Diego’s investment community still has not bounced back from the crash.
“The 500-point drop scared the hell out of small investors,” Katz said. “And it takes a long time to get their confidence back.”
Investors have been further shaken by the federal conviction of arbitrager Ivan Boesky and the continued investigation into possible market manipulation by other key Wall Street players, Katz said.
Some Hurt Worse
The crash was especially devastating to investors who “had a total misunderstanding of the stock market and the (short-term) risk it entails,” according to Tom Warschauer, associate dean of San Diego State University’s College of Business Administration.
The short-term risks were compounded by a new generation of technology-driven trading programs that small investors “don’t understand and can’t get involved in,” according to Joseph Winicki, senior investment officer for Home Fed Trust, a division of Home Federal Savings & Loan.
‘Gotten Out of Hand’
“Things had frankly gotten out of hand,” Winicki said. Investors viewed the bull market that led to the crash as “a ride to the moon that everyone wanted to get aboard. But it could not go on forever.”
Analysts disagree on what caused the crash, but most observers place some of the blame on computer trading programs.
“What happened was a compression into one day of what used to happen in six to eight weeks,” said one market analyst. “In previous market downturns . . . the exodus was slow, because the technology didn’t exist to (exit the market) as rapidly.”
The wealth of new computer-driven trading programs “created a monster,” Winicki said. “The crash forced (Wall Street) to step back a bit to try and see what the problem was.”
Savvy investors, defined by Warschauer as those who view stocks as a long-term investment, are now concentrating on the future.
“The market is built on the expectations of what’s going to happen,” Warschauer said. “The past . . . only gives us some insight into how risky different investments are.”
San Diego’s business community tends to share that view.
‘Not a Grand Turn-Away’
The crash “turned out to be a non-event,” according to Oak Industries Chairman E. L. McNeely. “It was not a grand turn-away from the market but a modest reconsideration. You can’t just look at the chart and say that the bottom fell out of the market.”
Winicki believes that most long-term investors viewed the crash with concern but not fear. Home Fed Trust received “surprisingly few” telephone calls from its “generally older and more conservative” clients, he said. “We had only one account leave us, and only one account switched its equity stock portion into bonds.”
Similarly, San Diego’s business community is more concerned about “the national economy and the defense budget than any lasting effect from the stock market crash,” according to Winicki.
The crash did reshape at least one business in San Diego. Los Angeles-based Thomas Green & Associates acquired most of the assets of San Diego Securities when the local brokerage firm found itself facing a cash crunch generated by the crash.
“Because of trading positions and margin calls, we could see a real (cash) strain on the horizon, and we decided not to wait around,” a San Diego Securities executive said in late October, 1987.
The crash also affected other business decisions made in San Diego during the past year.
McNeely, for example, had hoped the crash would deflate the asking prices for companies Oak Industries wants to acquire.
“That has not happened, and the LBO (leveraged buyout) wave has continued unabated,” McNeely said. “We thought (the crash) would have some aftershock. We thought (prices) would level off.”
How San Diego Firms Fared in the Crash
Some San Diego stocks were hard hit by the Oct. 19, 1987, crash. However, some of San Diego’s publicly traded companies began posting losses several days before the crash. Still others didn’t begin to lose ground until the following week. Few of San Diego’s publicly traded companies have regained all the ground that they lost in October, 1987.
Company 10/12/87 10/19/87 10/26/87 Great American First 15 1/2 12 7/8 11 1/2 Home Federal S&L; 31 1/2 27 3/4 26 Rohr Industries 32 7/8 20 18 3/4 San Diego Gas & Electric 32 3/4 28 3/4 29 7/8 Cubic 20 5/8 16 3/4 12 7/8 Agouron Pharamceutical 12 3/4 11 9 Fisher Scientific Group 19 14 12 Molecular Biosystems 13 3/4 9 1/8 8 Price Company 39 32 27 1/2 Synbiotics Corp. 8 6 4 5/8 TCS Enterprises 5 4 3/4 4 WD-40 33 26 3/4 24 1/2
Company 10/17/88 Great American First 11 5/8 Home Federal S&L; 25 1/8 Rohr Industries 32 1/8 San Diego Gas & Electric 35 3/8 Cubic 17 3/8 Agouron Pharamceutical 13 Fisher Scientific Group 16 Molecular Biosystems 12 3/4 Price Company 40 Synbiotics Corp. 6 TCS Enterprises 2 WD-40 32 3/4
So urce: Thomas Greene/San Diego Securities
