Walkout Causes Turmoil at Kidder Peabody Unit

Kidder, Peabody Group Inc., the General Electric Co. brokerage subsidiary, said Friday that its chief executive will take direct interim control of the Kidder investment banking unit whose top officials resigned this week.

Kidder President and Chief Executive Michael A. Carpenter will be the interim head of the investment banking unit while the firm searches for a permanent replacement for Michael D. Madden, who resigned as head of investment banking Thursday, a spokeswoman said.

Madden, the highest-ranking senior Kidder executive, and two other top Kidder investment bankers, Douglas V. Brown and Thomas W. Ostrander, resigned without announcing new plans.

Also departing Thursday was Steven P. Baum, head of mortgage trading, who took a leave of absence.

According to analysts, the resignations are a blow to attempts by GE to stem internal problems at the venerable investment firm, analysts said.

Kidder sources said more departures were expected at the nation’s 15th-largest securities firm.

The latest resignations came less than two weeks after GE named one of its own executives to head Kidder, prompting the resignation of 20-year veteran Max C. Chapman Jr., who had been running the securities group’s daily operations.

Downplays Walkout

In a statement, GE said Friday that the departures were “understandable” because of disagreements over new directions for 124-year-old Kidder.

“While it is disappointing to note the recent departure of several Kidder officials, employment changes following receipt of bonuses is not an unusual occurrence in the securities industry,” said Lawrence A. Bossidy, vice chairman and chief executive of GE’s financial services unit.

Kidder has experienced internal disenchantment, corporate embarrassment at its involvement in the Wall Street insider trading scandal, and a loss of stature and clients since GE bought an 80% stake in the firm in 1986.

“The presence of GE and some of the decisions that have resulted has contributed to some of the problems,” said Brenda Davis McCoy, who follows the securities industry for Paine Webber Inc. “They’ve had numerous management changes and repeated changes in strategy.”

Several people familiar with the situation said General Electric has met resistance to its plans to join the two companies more closely. The Wall Street firm operates, like many other brokerage concerns, with a loose corporate structure where individual brokers have more freedom than in the more traditional General Electric.

Madden said in a telephone interview Friday he had difficulty maintaining confidence among his bankers because of perceived inequities in compensation.

Irked by Bonus Cuts

“The real linchpin of the decision was that I think that Kidder-GE can ultimately succeed. However, there are a number of fundamental structural and cultural differences between the two organizations that need to be addressed,” he said.

Kidder sources said there is widespread dissatisfaction at the firm with reductions in employee bonuses, plus a conflict between GE management and Kidder’s investment bankers over the department’s strategy.

Analysts said the recent senior management changes by GE reflected the parent company’s desire to exert greater control over Kidder’s day-to-day operations, as well as GE’s latest attempt to deal with difficulties posed by the firm.

Carpenter, the former executive vice president of GE Capital Corp. who was named Kidder’s president and chief executive two weeks ago, declined to comment directly on the impact of Madden’s departure.

Kidder’s reputation was tainted when it became embroiled in the Ivan F. Boesky insider trading scandal. The firm agreed in 1987 to pay a then-record $25.3 million to settle civil charges with the Securities and Exchange Commission.