What a difference a year makes.
BHC Securities Inc., which a year ago was thrashed by Wall Street, spurned by key clients, and under pressure to accept a major investor's takeover bid, is alive and well.
With hard work, the Philadelphia transaction-clearing house has retained some clients and added others. A bull market has helped nearly double its stock value from a year ago, from $11.75 a share to a recent high of $22.125. And with a healthier outlook, the pressure to sell has waned.
"The company's fortunes have improved in recent quarters," said analyst Richard X. Bove at Raymond James & Associates, St. Petersburg, Fla.
Last year, BHC was on the verge of losing several key clients: Norwest Corp., Minneapolis; First Chicago NBD Corp.; Citicorp, New York; and USAA Brokerage Services Co., San Antonio.
"That's the thing that killed the stock," said Mr. Bove. "The company was announcing the loss of one contract after another, and the market couldn't live with it."
BHC did lose the business of Detroit's NBD, which in its merger with First Chicago Corp. gained a substantial clearing operation. Yet it won an 18-month contract extension from Citicorp. And meanwhile, it's retaining the business of Norwest and USAA, which plan to begin doing their own clearing later this year.
William T. Spane Jr., BHC's chairman, chief executive, and president, is stoic about the departure of some clients. "One should expect to lose some organizations," he said.
Even as more bank brokerages have sought to open in-house clearing centers, Mr. Spane argued, history shows banks will look for ways to cut costs.
"If anything, outsourcing is the trend," he said. For bank brokerages that have tried to cut staff in clearing operations, "the repercussions are quick and dirty. Customers do look for accurate (bank) statements."
BHC has 41 bank-brokerage clients and serves 1.1 million accounts. Two years ago, it had 35 core clients and 1 million accounts.
A major potential client is waiting in the wings: An agreement to do clearing for Great Western Financial Corp. has been delayed, pending the outcome of H.F. Ahmanson & Co.'s unsolicited takeover bid.
To rely less on its core clients, BHC has sought more business from insurance companies and mutual fund marketers. It now has 175 so-called relationship clients, Mr. Spane said. They provide a hedge, of sorts, against banks' doing their own transaction clearing-but by no means a sure- fire one.
"I'm not so sure even some smaller banks won't get into" clearing their own brokerage transactions, said analyst Michael A. Flanagan, who follows BHC for Financial Service Analytics, Jenkintown, Pa.
BHC has also set up alliances with Atlanta-based Security First Network Bank, which offers brokerage services over the Internet, and SunGard Data Systems Inc., a Wayne, Pa., firm that processes trades on capital markets.
Despite what many saw as a shaky year, net income in 1996 grew to $18 million, or $2.69 a share, from $13.9 million, or $1.94, the preceding year.
Net revenue last year increased to $81.2 million, from $65.7 million in 1995.
BHC invests up to 20% of its net revenue in technology and research and development, which Mr. Spane said sets the company apart from its chief competitors, National Financial Corp., a unit of Fidelity Investments, and Pershing, a unit of Donaldson, Lufkin & Jenrette.
"That's not unreasonable," said consultant Geoffrey Bobroff of Bobroff Consulting Inc., East Greenwich, R.I. "Clearly, that's what's happening in the industry. For BHC to compete and retain its customer base, they have to offer service and functionality to compete with Chuck Schwab."
By comparison, Charles Schwab & Co. invests $100 million a year on technology; Fidelity, $500 million; and Merrill Lynch & Co., $1 billion, Mr. Bobroff said.
The gain in BHC's stock price has eased the pressure from one of its largest shareholders, Private Capital Management, Naples, Fla. The firm, owner of 20% of BHC, sought to buy the company last fall, when its shares were trading at $13. Private Capital's president, Bruce Sherman, did not return calls seeking comment.
Mr. Bove, the Raymond James analyst, said BHC could continue to improve earnings, perhaps by a nickel or more per share.
"You won't see big highs in earnings, but you won't see big lows either," he said. "They're much more steady than brokerages."
