Inter-Regional Financial Group, Inc.

views updated

Inter-Regional Financial Group, Inc.

Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402-4422
U.S.A.
(612) 371-7750
Fax: (612) 371-7933

Public Company
Incorporated: 1909 as Kalman & Co.
Employees: 3,340
Sales: $542 million (1995)
Stock Exchanges: New York
SICs: 6211 Security Brokers & Dealers; 6289 Security & Commodity Services, Not Elsewhere Classified

Inter-Regional Financial Group, Inc. (IFG) is one of the nation’s ten largest full-service regional brokerage and investment banking companies. It operates through two subsidiaries that serve clients primarily in the western half of the United States: Dain Bosworth Incorporated, based in Minneapolis, and Rauscher Pierce Refsnes, Inc., which is headquartered in Dallas. IFG also supports smaller investment and asset management units as well as an operations and technology group.

IFG’s roots reach back to 1909, when Oscar Kalman started a small brokerage shop in St. Paul, Minnesota. The venture, dubbed Kalman&Co., began selling stocks and municipal bonds to local customers. Kalman’s shop was just one of many brokerage businesses that opened in the United States during the early part of the century. In fact, a surging industrial base generated huge markets for stocks and bonds, particularly during the 1920s. Several of the companies created to serve those markets would eventually be consolidated into the company that would become Inter-Regional Financial Group.

Kalman was the earliest of those companies. It was followed in 1916 by a Denver, Colorado, venture named Bosworth, Chanute, Loughridge&Co. That firm was formed by Arthur Bosworth, Octave Chanute, and Paul Loughridge. They created the company to take advantage of, and facilitate, municipal growth during a boom in Denver’s economy. Other companies that would later join to form IFG included Quail&Co., which was founded in Iowa in 1922, and Sullivan & Co., another Denver firm that opened in 1927. But the enterprise that would later be credited with engineering the amalgamation of a brokerage network in the western United States was started by J.M. Dain in 1929, right before the infamous stock market crash that kicked off the Great Depression.

J.M. Dain had moved to Minneapolis in 1922 to represent a Chicago investment firm. In 1929 he decided to branch out on his own with J.M. Dain & Co., a municipal bond trading house. He hired a secretary, Mary Donohue, and opened a small office in Minneapolis. His timing couldn’t have been worse. The stock market crash and ensuing depression devastated financial markets. Despite tough times, Dain persevered and, unlike many of the more established trading houses, managed to survive. Another company that started and managed to survive during the Depression was an enterprise that would become Rauscher Pierce Refsnes. That venture would become Dain’s sister firm in the 1970s.

Merrill Cohen took control of Dain & Co. in 1933 and helped steer it through the crises and into the 1940s. Dain & Co.’s growth was relatively slow, but by the late 1950s the organization was employing 75 workers in eight offices. Dain began to expand much more quickly in the 1960s. That progress was largely the result of the efforts of Wheelock Whitney, who became chief executive of Dain in 1963. It was under his direction that Dain launched an aggressive growth and diversification drive. To that end, J.M. Dain & Co. merged with Kalman & Co. in 1967. Shortly thereafter the company purchased Quail & Co. The resultant organization became Dain, Kalman & Quail, Inc.

In addition to the mergers, Dain launched a new real estate affiliate in 1968 (later called Dain Corporation). By the late 1960s Dain, Kalman, & Quail, Inc. was sporting 17 offices in six upper-midwestern and western states including the Dakotas and Wyoming. Its headquarter offices swelled to house 400 employees and the name of its office building, the Rand Tower, was changed to Dain Tower to reflect the prominence of its major tenant. Dain acquired two other firms in the late 1960s before going public in 1972 with the sale of 250,000 shares on the New York Stock Exchange. A year later the company bought out Bosworth, Sullivan & Co., which was the successor to Bosworth, Chanute, Loughridge & Co.

It was in 1973 that Inter-Regional Financial Group, Inc. was formed. IFG was created by Dain as a holding company that effectively existed to own the assets of two separate companies; Dain, Kalman, & Quail, Inc. and Bosworth, Sullivan & Co. Those two organizations would operate as separate entities until 1979, when they were fused into Dain Bosworth Incorporated. Thus, Inter-Regional had become a major regional broker with offices in the Midwest and western United States through Dain Bosworth. Furthermore, its Dallas-based Rauscher Pierce Refsnes brokerage subsidiary gave it a powerful presence in the Southwest.

As it labored to expand its sprawling brokerage network in the western half of the United States during the 1970s and early 1980s, IFG simultaneously stepped up its effort to diversify into new markets. To that end, the company launched a number of new ventures and initiatives. Besides its Dain Corporation real estate affiliate, IFG started an investment consulting business (Investment Advisers) and even purchased a life insurance company (Midwest Life), among other ventures. In the early 1980s it also laid plans to open up its own savings and loan business, although that effort was ultimately thwarted by federal regulators.

Among IFG’s most successful endeavors during the 1970s was IFG Leasing, a subsidiary that derived most of its income from leasing farm and office equipment. The business took off during the mid-1970s and, at its peak, was accounting for roughly 50 percent of IFG’s entire earnings base. Unfortunately, IFG Leasing’s prosperity began to wane in the late 1970s, signaling a period of misfortune for Inter-Regional Financial Group. Indeed, IFG Leasing’s profits started tumbling in the late 1970s and continued to fall into the early 1980s. IFG Leasing finally became such a drag on IFG’s bottom line that it almost forced its parent into bankruptcy.

IFG Leasing’s problems began with the recession of the late 1970s and early 1980s. During the mid-1970s, the company profited from heavy leverage; it borrowed money to purchase equipment, which it leased to customers. The profit margin consisted of the spread between the lease rate charged to customers and the interest rate charged by IFG Leasing’s lenders. The strategy failed when interest rates exploded under the Carter administration. Furthermore, because of the recession, many customers simply couldn’t pay their bills. The net result was that IFG Leasing began hemorrhaging cash, paying high interest rates and generating insufficient cash flow from its troubled customer base.

By the mid-1980s IFG was teetering on the edge of bankruptcy. Augmenting problems with the leasing division was the disappointing performance of the Rauscher Pierce subsidiary and the Midwest Life unit. IFG managed to obscure problems with its leasing division until 1983, when the dilemma began to climax and IFG decided to shutter the subsidiary. As its troubles became more obvious, IFG’s stock price plummeted; from about $25 in 1983 to less than $10 in late 1985. By 1985, in fact, the company’s long-term debt had climbed to $73 million (from just $ 10 million in 1981). Furthermore, IFG had lost $60 million between 1983 and 1985. Investors feared that the company was barreling toward bankruptcy.

Rising to the chief executive post during IFG’s management shakeout in the mid-1980s was Richard D. McFarland, who succeeded Thomas Holloran in June of 1985. McFarland had started with Dain as a salesman in the 1960s and had progressed through the ranks before he became president of IFG in 1982. He was moved to the top slot in 1985 by a board of directors that was eager for a turnaround. Among IFG’s first moves under McFarland’s direction was to put Investment Advisers and Midwest Life on the auction block. Both subsidiaries were profitable at the time. The sale of the money management unit helped to reduce IFG’s debt and allowed management to begin refocusing its attention on its core brokerage businesses.

Management’s streamlining efforts were augmented by rebounding trading markets in 1986 and early 1987, when surging stock markets allowed IFG’s core trading business to post record revenue and income figures. Meanwhile, new management continued to chip away at past problems. Among other moves, executives fired and successfully sued IFG’s auditors, and managed to sell the life insurance business. During the late 1980s, moreover, the company began to reduce its brokerage staff and to improve the average commissions earned per broker. Although IFG posted a net loss in 1988, it appeared as though it had emerged from its crises by the end of the decade.

Inter-Regional’s rebound during the late 1980s and early 1990s was largely attributable to the efforts of Iring Weiser, the man that McFarland had hired to serve as president of IFG. Weiser had served as an attorney for IFG’s outside counsel before McFarland lured him away in 1985. The 38-year-old Weiser, a Polish Jewish immigrant, had experience in the industry, although he had never made a trade. His problem-fixing skills became valuable to IFG. Among other moves, for example, he helped to reorganize the real estate division after that industry collapsed in the late 1980s.

IFG continued to draw on Weiser’s management skills during the early 1990s, during which he was promoted to chairman of the company. During that period, IFG emphasized its securities trading businesses, cut costs, and managed to boost revenue and profits. To that end, Weiser eliminated some poorly performing offices and continued to shrink the company’s total work force. Healthy markets helped IFG to grow its revenue from about $312 million in 1990 to more than $500 million in 1993, about $47.6 million of which was netted as income. In 1993, in fact, the company started to expand again.

In late 1993 and 1994 IFG opened 14 new offices for a total of 93 in 23 states. It also started hiring new brokers, bringing the total brokerage staff at its two firms to a record 1,250 by year’s end. Furthermore, IFG expanded eastward with the acquisitions of Clayton Brown Holding Company, a privately held, Chicago-based firm specializing in fixed-income securities. By late 1995 IFG was the tenth-largest full-service regional brokerage house in the nation and the leading broker in its region. The company posted record revenue of $542 million for 1995. About one-third of that amount came from Rauscher Pierce and most of the remainder was attributable to Dain Bosworth.

Principal Subsidiaries

Dain Bosworth Inc.; Dain Equity Partners, Inc.; Dain Kalman & Quail Municipal-Nebraska, Inc.; Clayton Brown Capital Corp.; Regional Operations Group, Inc.; Rauscher Pierce Refsnes, Inc.; Rauscher Pierce Refsnes Leasing, Inc.; RP Transportation Corp.; RPR Mortgage Finance Corp.; IFG Asset Management Services, Inc.

Principal Divisions

Dain Bosworth Retail Sales Group; Dain Bosworth Corporate Capital Group; Dain Bosworth Fixed Income Group; Rauscher Pierce Refsnes Retail Sales Group; Rauscher Pierce Refsnes Fixed Income Group; Rauscher Pierce Refsnes Corporate Capital Group; Rauscher Pierce Refsnes RPR Clearing Services.