L .F. Rothschild Holdings Seeks Bankruptcy Protection
L. F. Rothschild Holdings, parent of a once-venerated Wall Street investment firm that suffered staggering losses from the 1987 stock market collapse, sought Friday to reorganize under Chapter 11 of the U.S. Bankruptcy Code.
The filing for protection from creditors does not include L. F. Rothschild & Co., a registered broker-dealer that is Rothschild Holdings’ principal subsidiary.
Rothschild Holdings, which lost $84 million in the quarter ended March 31, is in default on three debt issues totaling $60 million and wants to restructure its debt to reduce interest expenses, according to spokesman Kenneth Henderson.
Separately, the Rothschild Co. brokerage said it intends to re-enter the retail business with a discount operation pitting the firm against such bigger discount brokers as Fidelity Investments and Charles Schwab Corp.
Rothschild Co., once a leader in public stock offerings for high-tech companies, will also continue to offer corporate finance and investment banking services with a greater focus on “middle-market and smaller capitalized companies.”
Rothschild Holdings filed its Chapter 11 petition with the Bankruptcy Court for the Southern District of New York in Manhattan. Henderson said the company soon would file its reorganization plan, which includes the swapping of existing debt for zero-coupon debt to cut current interest expenses.
Much Smaller Firm
The company’s board said that while the move may affect the firm adversely in the short term, “following a successful reorganization . . . Rothschild will be better positioned” to expand its business through the brokerage arm and ultimately become profitable.
Henderson said Rothschild Co. has “a large number of deals in the works” mostly involving mergers and acquisitions and leveraged buyouts, but he could not elaborate.
With 75 employees, the current Rothschild is a shadow of the old-line investment house and full-service brokerage that employed as many as 2,200 people before the Oct. 19, 1987, stock market crash.
Rothschild was formed in 1899 as L. F. Rothschild & Co. In 1977, it merged with C. E. Unterberg Towbin Co., then a young investment boutique. But management strife forced out partners A. Robert Towbin and Thomas Unterberg shortly after the company went public in 1986.
As of Jan. 1, 1987, Rothschild ranked as the 18th-largest U.S. securities firm with capital of $289 million. But by the end of the year, Rothschild posted a $129-million annual loss, $56 million of which resulted from arbitrage and over-the-counter trading positions held during the Black Monday crash.
In an attempt to rebound and slash fixed costs, Rothschild systematically sold or abandoned its retail brokerage, public finance and municipal bond sales and trading operations. It also ceased over-the-counter market making, arbitrage and the selling and trading of mortgage-backed and high-grade corporate securities.
The firm, which in late 1986 became one of just 40 primary dealers that could buy and sell government securities as both principals and agents, left that business in January.
“The object . . . in the recent past is to reduce operations and be as efficient as possible and go into businesses with . . . the lowest overhead,” Henderson said.
A year ago, Rothschild Holdings became a subsidiary of Franklin Financial Services, a services company that itself is a unit of Ottawa, Kan.-based Franklin Savings Assn.
Regarding the brokerage business’s plans to offer discount brokerage services, Henderson said, “We’re aware that it is a very competitive business. But we do have customer lists from our old retail operations and can rely on the Rothschild name.”
Except for advertising, the cost of setting up discount brokerage operations will be minimal, Henderson said. Back-office operations, which he described as the heaviest contributor to overhead, will be handled by another firm.
