U.S. Bancorp: No truth to piper sale rumors
Neal St. Anthony
Published Sep 25 2001
The persistent buzz in recent weeks in the Twin Cities securities
trade is that U.S. Bancorp may sell its Piper Jaffray
investment bank to senior Piper managers and a small group of
investors.
"There's been a lot of smoke and the stories ebb and flow," said
Ben Crabtree, a veteran financial services analyst at Advantus
Capital in St. Paul. "One of the reasons the stories stay alive is
because they make conceptual sense. The capital markets
business is fairly small but fairly volatile."
Fueling the fire is the fact that the new U.S. Bancorp
management took several hundred million in charges to close
its former Libra high-yield debt business and subprime finance
business in the second quarter.
"They don't like a lot of risk and volatility of earnings,"
Crabtree said.
A USB spokesman said Monday there's no truth to the
speculation.
"There's no consideration being given to selling Piper," USB's
Steve Dale said. "It's an important part of the business."
It's understandable if CEO Jerry Grundhofer, who succeeded
his older brother Jack this year at the consolidated
USB-Firstar, isn't enamored of Piper's results this year. The
unit's operating income is expected to slip at least 25 percent to
$245 million. That includes results from the $115 billion
asset-management unit, a fee-based business that is Piper's
largest and generates a pretty consistent revenue stream
regardless of market volatility. But most of those assets
originated with the bank.
Throw out that group and Piper's results are down an estimated
50 percent-plus in this depressed equities market. And Piper
businesses are expected to contribute only about 4 percent of
USB's operating profit this year.
Under Jack Grundhofer, USB paid $730 million for Piper
nearly four years ago, a period in which banks were eager to buy
brokerages. Piper contributed to the bottom line in 1999-2000.
The idea was that the bank and Piper would cross-sell products
and the two could share a growing slate of corporate-finance
and commercial-banking customers.
There's been some cross-selling within the consolidated retail
brokerage and asset-management businesses, but equity capital
work hasn't dovetailed with the bank's efforts.
Jerry Grundhofer wants to convince Wall Street that he's
building a bigger, low-cost, sales-oriented earnings machine
with a high percentage of repeatable earnings built around
banking, fast-growing electronic payment services, asset
management and other fee-based businesses.
"Many banks believed they could mitigate the cyclicality of the
securities business by making compensation more variable,
installing tighter controls and other means," said Mike
Flanagan, an independent securities industry analyst outside
Philadelphia. "But the industry still retains many of the
[volatile] characteristics."
It's been no picnic this year either at Dain Rauscher, the
Minneapolis company that was sold last year to Royal Bank of
Canada for $1.45 billion in cash, not long after the stock
market peaked.
Dain, which posted record earnings of $100 million on revenue
of $1.1 billion in 2000, is said to be headed for marginal
earnings on revenue of $750 million -- about what it did in
1998.
Appel calls it a career
John Appel, the longtime chief financial officer of Dain, a
one-time CEO of the former Dain Bosworth and, for the past
two years, president of Dain's fixed-income department, is
retiring at the end of the year.
Appel, 52, will be succeeded by Larry Holtz, director of
fixed-income sales and trading.
Appel joined Dain in 1986. With a bankruptcy plan on the
shelf, the capital-thin company worked its way out of financial
blowups in the leasing and real estate businesses. It survived and
went on to its best years in the 1990s, the acquisition of Wessels
Arnold & Henderson and the sale to Royal Bank.
Appel was the model of analytical calm in an often-crazy
place. He ends his career at Dain amid the revenge of the bond
nerds.
After several years in the shadows of the booming equity
markets, Appel's overhauled bond department saw revenue rise
75 percent in the first half of the year. The bonds part of the
Dain shop is headed for solid profitability.
Appel can afford to retire to personal pursuits in Oregon. The
aggregate value of his stock and options was estimated at more
than $15 million at the time the Royal Bank deal was
announced last year.
Insiders expect CEO Irv Weiser, 54, to retire within a year or
two, as most business lines shift toward reporting to Toronto
and as Weiser completes Dain's acquisition of Boston-based
Tucker Anthony Sutro. Tucker gives Dain a presence on the
East and West coasts.
Yanisch Responds on Finns
Commissioner Rebecca Yanisch of the Minnesota
Department of Trade and Economic Development took issue
with last Friday's column, which looked at whether Minnesota
did enough to land a commitment from a Finnish software
consortium seeking a gateway to the U.S. market for wireless
products.
Yanisch said the deal breaker was whether the department
would pay $200,000 to the consultant retained by the Finnish
businesses to do spade work that the department does as a
matter of course in trying to help businesses locate here.
Moreover, she said consultant Victor Vurpillat of San Jose,
Cal., lacked a credible business plan for the businesses.
"We couldn't find the value in writing a check for $200,000 to
this consultant," Yanisch said. "We said we'd work in
partnership with [the Finnish businesses.] We don't have a pot
of dollars to pay consultants to do spade work. We have staff
who are very skilled at making these connections [with venture
capitalists, real estate sources, colleges and others]. We said, 'If
we can't do it as you've proposed, let's do it together.'"
Yanisch said Minnesota left the door open for more talks, but
the next thing officials knew, Vurpillat got the money from the
state of Georgia. He said he'll use it for a forum in Atlanta early
next year to include the prime minister of Finland -- the home
of Nokia and a global leader in wireless telecommmunications
-- that will kick off the Finland-Georgia partnership.
Yanisch and an aide said they thought the column, which
included quotes from others who were disappointed that the
Finnish deal got away, was unfair.
If the Finn-Georgia deal, once dubbed "Finnesota," adds
millions in investment and hundreds of jobs there as predicted,
it will be a loss.
We've covered some wins of Yanisch's department, including
the recent announcement by Finnish-owned Blandin Paper
that it will build a new, superefficient, wood-fired power plant
with Minnesota Power at its northern Minnesota paper factory.
We've also covered some botched deals on the watch of other
commissioners -- from chopstick factories to the state's blown
investment in the failed Excelsior-Henderson Motorcycle.
The attention goes with the high-visibility territory.
Scholarship established
Oppenheimer Wolff & Donnelly has established a $20,000
annual scholarship for law students who commit to
technology-related practices, in recognition of the
contributions made by senior partner Richard Lareau.
Lareau was an early adviser to Bill Norris, the founder of
Control Data Corp., and was general counsel and a member of
the firm's board of directors for years.
"We believe that the best way to recognize Dick's contribution
to clients and community is to foster the development of future
lawyers who can follow in his footsteps," said Brad Keil,
Oppenheimer CEO.
-- Neal St. Anthony can be reached at 612-673-7144 or
Nstanthony@startribune.com.
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