Rothschild Cites Lack of Profits, Drops Out as Primary U.S. Dealer

L. F. Rothschild & Co. Inc. said today it has withdrawn as a primary dealer, making it the second institution in less than a week to defect from the exclusive club of bond dealers that trade directly with the government.

Rothschild, a subsidiary of L. F. Rothschild Holdings Inc., said its departure, which will leave 44 primary dealers to trade with the Federal Reserve, is effective immediately.

Scope of Decision Told

Rothschild also said it will discontinue its U.S. government securities sales and trading activities except for trading in its own account.

Rothschild said that, while its capital exceeds the Federal Reserve’s new requirements for primary dealers, the return on capital devoted to its government securities operations has been insufficient to warrant continuation of the business.

A rumor that Rothschild would leave the primary dealer business circulated widely on Friday when County Natwest Government Securities Inc., a subsidiary of Britain’s National Westminster Bank Plc, said it was quitting the overcrowded and often unprofitable business.

County Natwest had been a primary dealer for less than four months when it made its surprise announcement.

Primary dealerships are special rights granted by the Federal Reserve to deal directly with the government when it issues debt securities. The once-prestigious role as the government-sanctioned bond dealer has been losing its appeal as intense competition cuts profit margins.

Dealers say that at least half of the primary dealers were not profitable in 1988. Some say that only seven firms made profits.