FIRST OF MICHIGAN MAY BE SEEING A LIGHT AT THE END OF THE TUNNEL: DETROIT BROKERAGE HAS FACED ONCOMING TRAIN MORE THAN ONCE

When Wall Street veteran Albert “Bud” Lowenthal emerged as the buyer of Detroit’s First of Michigan Capital Corp. last June, he was viewed as a savior.

Brokers thought the offer by Mr. Lowenthal, chairman and chief executive officer of Fahnestock & Co., would end years of CEO turnover and boardroom meddling by shareholders who had never worked in the brokerage business.

But the honeymoon was brief. Between an apparently too-small bonus offer to induce FoM brokers to stay put and persistent, maddening technology problems, Mr. Lowenthal was powerless to stop an exodus of brokers and other talent.

Now the company is moving to shore up areas its critics have called its weakest: technology, branch management and the back office, where customer orders are processed and investment statements are created.

The appointments early this month of three executives and the removal of Mark Shobe, the brokerage’s president, to a job where he naturally fits — in technology — look like the first step of the rebuilding.

And he made another thing clear: First of Michigan will remain the name for local operations. He denies rumors that the brand name will be scrapped in favor of Fahnestock & Co.

by any other name

“Fahnestock has very low name recognition in Michigan,” Mr. Lowenthal says. “The name, First of Michigan, is a very valuable franchise.”

The picture at First of Michigan got clearer earlier this month when three staffers with more than 70 years of combined experience were named to run the company as a trio of managers.

Bruce Rockwell, a 38-year veteran of First of Michigan, was named vice chairman; Charles MacKinnon, former senior vice president of operations, was named chief operating officer; and Chris Kontos, former branch manager of FoM’s Dearborn office, was named senior vice president of branch administration.

Meanwhile, Mr. Shobe, president of FoM since June, will move to a post in New York as managing director of technology. Mr. Shobe, a CPA by training and
a banker by career path, says his new position with Fahnestock is “right in line with my experience.”

There are no plans to appoint another president at this time.

Perrin Long, a longtime securities industry analyst who was FoM’s director of equity research from 1991 to 1994, says the choices are solid.

But some still worry about technology. One former FoM branch manager says the Fahnestock system is slower than the system at his new firm and doesn’t provide for instant information on the status of customer accounts or confirmation of trades.

Mr. Lowenthal maintains that Fahnestock’s computer technology is being upgraded.

“Any time you do a major consolidation of this size — moving over $6 billion of customer assets, 90,000 accounts — over a single weekend so that customers would not be inconvenienced, there are going to be some glitches,” Mr. Lowenthal says.

Mr. Lowenthal’s role as FoM white knight followed a long string of CEO defections. The last straw, those familiar with the company say, came in late May and early June. First of Michigan announced that Robert Michelotti, an executive from rival Detroit brokers Roney & Co., would join FoM as president.

He lasted only six days before something — he still won’t say what — prompted him to go back to Roney.

At that point, the former owners, the Mendelssohns, “washed their hands of the company,” Mr. Long says, and started seeking a buyer. That wound up being Mr. Lowenthal.

But between the bonus offer and the technology problems, about a quarter of the 300 brokers Lowenthal thought he was buying have walked out. Included in that total are about 30 of FoM’s top 50 producers.

hopes worst is over

The biggest blow was a mass defection of 50 brokers to the Louisville, Ky., regional broker J.J.B. Hilliard, W.L. Lyons Inc. That prompted FoM to file an arbitration claim against Hilliard Lyons before the National Association of Securities Dealers that is expected to begin hearings in June. FoM is seeking unspecified m
oney damages.

Other brokers have left in smaller numbers for various regional and national firms.

Commenting on the bonuses, Mr. Lowenthal says: “The package itself was competitive with what the industry has done in these transactions. One has to temper what people might like with what business dictates.”

Lowenthal says he hopes the worst of the defections, which he believes were primarily over the bigger bonuses, are over. He’s concentrating, he says, on rebuilding First of Michigan into a solid regional firm.

Rumors continue to circulate about more brokers planning to leave FoM, especially since a Hilliard Lyons agreement not to hire any more FoM brokers, part of the NASD arbitration proceeding, expired.

Crain News Service