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Go-go gone: Little Rock's investment community slowly sheds bucket-shop reputation of the 1980s.

It's early on a Wednesday morning, and a flurry of activity has erupted on the trading floor at T.J. Raney & Sons in Little Rock.

About a dozen lots of municipal bonds are for sale. The tax-free bonds represent projects from Arkansas cities such as Blytheville, Texarkana and Gravette. The Illinois State Toll Highway Authority also is represented.

Brokers work the phones under the watchful gaze of four clocks. The clocks represent the Eastern, Central, Mountain and Pacific time zones.

As soon as one of the items is sold, a trader announces it over a public-address system, known internally as the squawk box.

"The appetite for |municipal~ bonds is tremendous," says Tommy Harkins, a managing director at T.J. Raney.

In about 20 minutes, $120,000 worth of bonds are sold.

It's not a staggering sum of money, but it's the type of traditional business that has served the investment firm well through the years.

The little things add up.

Morgan Keegan Inc., T.J. Raney's Memphis, Tenn.-based parent company, recently drew praise in The Wall Street Journal for its financial performance. The company reported an after-tax profit of $7.7 million on revenues of $116.5 million during the 1991 fiscal year that ended in July.

Morgan Keegan is expected to top $150 million in revenues in fiscal 1992 and register a corresponding growth in net income.

Little Rock firms such as Stephens Inc., Crews & Associates Inc., Hill Crawford & Lanford Inc. and Powell & Satterfield Inc. also have fared well in the 1990s.

The investment houses stayed the conservative course. They now are reaping the rewards of having survived a downturn.

"There still doesn't seem to be a shortcut to success," says Rush Harding of Crews & Associates. "Persistence and determination will outperform genius 99 percent of the time."

Things have changed dramatically since the days when Little Rock boasted one registered securities dealer for every 90 residents, perhaps the highest such per capita in the world. That was in 1988 when an estimated 2,000 securities salesmen were licensed to do business in the city. The number has fallen to between 1,000 and 1,500.

The attrition has helped Little Rock shed its reputation as Slam City, a moniker that caused mainstream firms to cringe. It's 1992, and the heyday of the bond daddies has ended.

When '80s investors learned they were dealing with cold-calling brokers from Little Rock, the typical reaction was to keep a hand on the wallet.

"We don't run into that anymore, and we deal with a lot of out-of-state clients," says W.W. "Bick" Satterfield, president of Powell & Satterfield.

I've Got A Feeling

Gone are the days when a broker could ring up an institutional investor and complete a multimillion-dollar deal based solely on the broker's "feeling" that zero-coupon Treasury bonds soon would be playing long, representing a quick-profit opportunity.

Speculative trading has faded into the background in a landscape dominated by conservative investment strategies.

"A lot of the exotic business has disappeared, and we're back to the basics," says Satterfield, a 30-year veteran in the investment industry. "Our firm is happy to see it settle down locally and see the abuses of the past disappear."

Stronger regulatory muscle and tougher market conditions were the leading causes of death among high-pressure boiler rooms.

Tombstones in this financial bone pile bear the names of Brittenum & Associates, Swink & Co., U.S. Associates, Bowman & Co., United Capital Corp., First Investment Securities, Boykin Sparks & Associates and Allison Rosenblum & Hannahs Inc.

Delta Financial Corp., with its black limousine shuttle service for executives and clientele, was perhaps the archetypal bucket shop. Regulators buried the company for preying on unsophisticated investors. Brokers made huge profits following excessive markups of securities.

Take the example of Pisgoh Savings Bank of Iowa and Poca Valley Bank of West Virginia.

During a two-month period, the Iowa thrift pocketed a $10,000 profit thanks to the trading skills of Delta brokers. However, on the other side of the balance sheet, the transactions generated $78,000 in commissions for Delta.

Those same talents produced a $205,000 loss for Poca Valley Bank in less than two months and $350,000 in commissions for Delta.

Officials at the state Securities Department would just as soon not talk about the bad old days.

Meanwhile, investors have had a change of attitude following the commission-driven investment mania of the go-go '80s.

"Fee-based money management is the rule now rather than the exception," says Tom Schallhorn of Southwest Capital Management, an affiliate of Hill Crawford & Lanford. "The investor dictated that trend |because of~ the inherent conflict of interest in doing business with commissioned brokers."

The lessons learned by inexperienced investors who were harmed by hard-charging brokers and a market they didn't understand won't soon be forgotten.

"People are more cautious ... now than they were during the go-go years," Harding says. "The downside is that people seem to be less trusting. But people are more knowledgeable."

The mood certainly has changed in the 1990s.

Will the suspender-wearing bond daddies creep back into Little Rock as the surviving investment houses begin to tally record sales?

Veteran brokers hope the cycle doesn't repeat itself anytime soon. For Little Rock's investment community, it might take a decade simply to recover from the decade of the '80s.
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Article Details
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Author:Waldon, George
Publication:Arkansas Business
Article Type:Industry Overview
Date:Jan 27, 1992
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