L.A. Becoming 'Red Chip' Colossus.

A just-completed study believed to be the most comprehensive assessment of Los Angeles-based public companies in recent history, generated exclusively for the Business Journal by investment banking firm Duff & Phelps LLC, reveals a sprawling landscape dominated by small and mid-sized companies that are generally thriving despite the downturn on Wall Street.

The population of 274 primarily "red chip" companies (listed on pages 31 through 44) are young, relatively small-cap firms that present a striking contrast to the aggregation of venerable blue-chip companies that characterized L.A.'s public company ranks just 15 years ago. Those business behemoths have largely left Los Angeles, merged, or gone belly up, a remarkably complete transformation that has left standing only a few true corporate giants in a vast small-business flatlands.

True, there are Amgen Inc. and Gemstar-TV Guide International, but even they are not major employers despite hefty market capitalizations.

Yet for all the corporate snubbing, the Los Angeles economy continues to grow. Employment in L.A. County since 1986 is actually up, even after the deep recession of the 1990s, the worst business period in the postwar era. There are 4.14 million employed in establishments in the county at latest count, compared with 3.87 million in mid-1986.

More than 75 percent of payroll checks issued in Los Angeles County (by dollar value) are issued by companies with fewer than 1,000 employees, according to the state Employment Development Department. There are an astonishing 290,700 businesses in Los Angeles with fewer than 100 employees, at latest count (third quarter 1999), according to the EDD.

There were just 560 companies with more than 500 employees.

The emphasis on small is seen in the list of public companies now in Los Angeles as well. Only 43 have market capitalizations of more than $1 billion, the usual minimum definition of a big-cap or blue-chip company.

More than 200 have market capitalizations of under $1 billion, and the vast majority of those are actually under $500 million.

That being the case, the economy of Los Angeles would to some extent then seem divorced from that of Wall Street.

So would a bad year for blue chips, or even a bad string of years, hurt the local economy?

Small-cap haven

Obviously, better a rally on Wall Street than not. No one is helped by slumping equity values and the resulting timidity of investors and consumers. But with so many Los Angeles-area businesses either untethered from Wall Street because they're privately held, or in the small- or mid-cap realms, Los Angeles to a certain extent can shrug off Wall Street nosedives, experts said. Indeed, if investors come to love the non-blue-chips, Los Angeles may actually get a modest boost even if the major indexes slide a little, said Dan Flaming, director of the Economic Roundtable, a downtown Los Angeles-based economic think tank.

"As we have seen, the stocks of small- and mid-cap companies have languished," said Flaming. "If such stocks now come to be seen as good investments, that would augur well for us."

Small caps might be able to issue new stock, finding capital for growth, suggested Flaming.

There is heartening evidence that investors are coming to respect the red-chip stocks. As of last week, the Standard & Poor's index of small-cap stocks had fallen less in 2001 than that of mid-caps, and the S&P 500 large-cap index has fallen most of all, noted John Siciliano, marketing chief for Santa Monica-based Dimensional Fund Advisers.

Yet in many regards, Wall Street's reach into Los Angeles has become pervasive and deep, even in segments largely considered entrepreneurial. For example, the dot-com and Web boom of the late 1990s was in large part fueled by the very robust reception that tech initial public offerings received on Wall Street. With eyes trained on the huge paydays on Wall Street, every financier in Los Angeles became a venture capitalist, and poured money into Web startups and Internet technologies. As a result, rents soared across West Los Angeles, and skilled workers became scarce.

But when the IPO window shut last year, the tech-wreck ensued, and suddenly millions of square feet of offices in West Los Angeles were thrown on the market again.

"Look for great deals on space this summer," said James Montgomery, founder of Santa Monica-based Digital Coast Partners.

Global perspective

In the bigger picture, Los Angeles is something of a small boat bobbing on a large ocean, that being a globalized economy, said Goetz Wolff, public policy professor with UCLA.

Giant factors, such as free trade, immigration, local education and infrastructure, or state and national tax policy, can have profound effects on Los Angeles, dwarfing any positive or negative influences emanating from Wall Street, he pointed out.

L.A.'s ties to Wall Street have not always been so remote. Fifteen years ago, the region boasted a powerful contingent of Fortune 500 corporate headquarters. But no more.

The roll call of the departed is stunning. Of Los Angeles' largest 25 public companies in 1986, only six are left standing.

Gone in the last 15 years are such stalwarts as Atlantic Richfield Co., Getty Oil, Lockheed Corp., and banks Security Pacific and First Interstate. The twins of the hospital chain world -- American Medical International and National Medical Enterprises Inc. -- are both gone too, as is nursing home chain operator Beverly Enterprises.

The wipeout of the region's once-fabled thrift industry is colossal in its extent. Not to be seen anymore is business pillar H.F. Ahmanson, and also Great Western Financial, Gibraltar Financial, GlenFed, CalFed, Columbia Savings, and Coast Savings.

Retailers known to generations of Angelenos have flopped, such as Carter Hawley Hale and Standard Brands. Even Times Mirror Corp., with its storied history and flagship Los Angeles Times, is now owned by out-of-towners.

The old titans tended to be major employers, and thus had a real impact on the local economy. Security Pacific employed more than 35,000 in 1986, while Carter Hawley Hale had 46,000 and Beverly Enterprises more than 105,000. Obviously, while not all those employees worked within Los Angeles County, thousands did, at headquarters.

                           Biggest Net Income
                             (in millions)
Occidental Petroleum  1,589.0
Amgen                 1,138.5
Wesco Financial          922.5
Walt Disney Co.          920.0
Unocal                   760.0
Source: Duff & Phelps
Note: Table made from bar graph
                            Biggest Net Loss
                             (in millions)
Fremont General     (518.7)
GoTo.com            (458.6)
Hughes Electronics  (409.5)
Ticketmaster        (224.2)  (in millions)
Stamps.com          (213.0)
Source: Duff & Phelps
Note: Table made from bar graph
               Biggest % Revenue Growth
Internetmercado.com   30,000%
Netgateway            19,493%
Stamps.com             4,131%
Amerigon             1,926%
Wesco Financial          1,135%
Source: Duff & Phelps
Note: Table made from bar graph
            Biggest % Revenue Drop
Connectisys         -100%
Perceptronics      -83%
Caminosoft         -81%
Avenue Ent. Grp.   -80%
Acacia Research      -50%
Source: Duff & Phelps
Note: Table made form bar graph