Perot's Orderly Retreat

Computer Millionaire H. Ross Perot's decision in 1971 to take over the teetering brokerage firm of duPont, Glore Forgan & Co. was widely credited with averting a round of genuine investor panic on Wall Street. Among other things, it seemed that the firm's customers claimed that they owned about $15 million more in securities than could be found in duPont, Glore Forgan's vaults. Other brokers were hardly anxious for back-office carelessness on Wall Street to become any more of an issue than it already was--which was certain to happen if the company folded.

Last week, confirming widespread rumors that he planned drastic changes in his expanded Wall Street empire (TIME, Jan. 28), Perot set about closing down duPont Walston, the nation's second largest brokerage house (after Merrill Lynch). The firm was the old Walston & Co. (renamed duPont Walston Inc.), an ailing brokerage that Perot had partially consolidated with duPont, Glore Forgan last July. Whatever the mistakes of the Texas millionaire in his 32-month binge in the securities industry, at least he still knew how to prevent panic. Walston's 143 offices remained temporarily open for business, and its 300,000 customers were free to transfer their accounts to other brokers at any time. In contrast to previous Wall Street failures, the stock market hardly noticed Walston's impending demise: the Dow Jones industrial average was virtually unchanged on the day of the announcement, and it finished the week at 859, up four points.

Following Perot's partial merger of the firms, Walston was given the retail stock-trading operation, while duPont Glore Forgan Inc. handled customer accounts, stock clearing and other record-keeping duties with data-processing techniques that Perot brought with him from Texas. To put the two firms back on their feet, he has poured in some $100 million from his own considerable fortune.

In flusher times, Perot's plan might have worked. But the stock market has been wobbling downward ever since the Dow Jones hit its alltime high of 1051.7 in January 1973. The advent of negotiated commission rates for large transactions in 1971 has cut into the profits of many firms. New York Stock Exchange member firms collectively lost some $80 million last year after turning a profit of more than $787 million in 1972. Among the biggest losers was Walston, which reportedly dropped $22.9 million between July and November, the first five months of Perot's stewardship. Meanwhile, duPont Glore Forgan has lost an estimated total of $33.2 million since Perot took control.

Because duPont Glore Forgan's only data-processing customer is Walston, Perot's original Wall Street possession will probably soon be dissolved as well. Walston is trying to find other brokerage firms to assume the leases on its branch offices and its more than $350,000-a-month Lower Manhattan headquarters. So far, it has come up with takers for at least 71 offices. Many of Walston's 4,000 employees will probably be retained by the new managements; customers, if they wish to, can pick up their holdings at Walston and follow their old broker to another firm. Just about the biggest loser will be Perot, who may recover as little as $10 million of his roughly $100 million investment.

Narrow Ties. Despite the good will that he gained from the 1971 rescue effort, not everyone in the industry was sorry to see Perot take such a bath. He was distrusted for his blind faith in computerization as a key to the industry's survival, for his nostalgic standards of employee dress (dark suits, narrow ties and supershort hair), and for the heretical notion that brokers be compensated on the basis of how well their clients' stocks perform rather than on how many shares they turn over. "He alienated a lot of the jerks in the industry with these techniques, and they are all talking him down now," said a leading computer-stock analyst. Perot will now probably concentrate on running his Dallas-based Electronic Data Systems. Its profits remain solid, though EDS stock has skidded from a high of $162 a share in 1970 to $18.50 last week, reducing the value of Perot's holdings from more than $ 1 billion to about $140 million.

Though the announcement of Walston's demise was not a major catastrophe for the securities industry, it may serve to deepen investor mistrust of the stock market and make it harder for other brokerages to sell the industry's future to bright young recruits. Moreover, some securities men fear that a Walston disappearance may be merely the first in a new series of big shutdowns. "The combination of the duPont situation and the bad market has given everybody the jitters," says Richard Jenrette, chairman of Donaldson, Lufkin & Jenrette. "There will probably be more firms to go, and I hope they'll go in as orderly a way as Walston."

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