CHICAGO -- Kemper Securities Group Inc. is well positioned for the future after a corporate restructuring that included nearly 1,200 layoffs and the centralization in Chicago of its five regional brokerage operations, said James Boris, the firm's chairman, in an interview last week.
The firm's public finance operations suffered only a few layoffs during the transition, but it did change its focus, according to Thomas Reedy, senior vice president and manager of the public finance department.
Now, he said, Kemper will try to pick up larger state and city issues in the Great Lakes, West Coast, and Rocky Mountain regions to augment its traditional strength as an underwriter of smaller issues.
Speculation that the restructuring -- begun in January 1990 and completed last month -- was a prelude to selling the securities group was denied by Mr. Boris. The company restructured simply to prepare for the 1990s, he said.
Changes included the exist of several top executives, shutdowns of some offices, and the sale of the Texas public finance department. "It looked very tumultuous to people on the outside," Mr. Boris explained, "but it was really just a matter of dealing with different cultures that had been together for decades."
He said the company's five regional firms, now termed divisions of Kemper Securities Group, had been operating "pretty autonomously" after Kemper acquired them between 1982 and 1986. The lack of coordination hurt profitability, he said.
The five divisions are: Bateman Eichler, Hill Richards Inc., in Los Angeles; Blunt Ellis & Loewi Inc., in Milwaukee; Boettcher & Co., in Denver; Lovett Underwood Neuhaus & Webb Inc., in Houston; and Prescott, Ball & Turben Inc., in Cleveland.
According to Kemper Corp. annual reports, securities operations posted net losses of $3.6 million in 1987, $2.4 million in 1988, and $7.2 million in 1989. The securities group is composed of retail sales; fixed-income trading, institutional sales, and research; equity trading, institutional sales, and research; and corporate, public and structured finance.
"As we came to the end of the 1980s, there were questions about what the future [of the securities group] ought to be," Mr. Boris said. "There were discussions ranging from 'Should we get out the of business?' to 'Should we change the way we are doing business?'"
Mr. Boris said they decided to stay in the business but to stream-line and concentrate on retail distribution -- which accounts for 80% of the firm's revenues.
"We just pragmatically determined that we had to focus on our retail business, because if we failed in 80% of our business we were going to fail over all," he explained.
Kemper has begun to show a profit. In the first six months of this year, the securities group reported net income of $3.2 million, compared with a net loss of $170.5 million in the first six months of 1990. That large loss in 1990 mainly stemmed from $146.2 million in special charges to cover the cost of the restructuring, according to Kemper Corp. quarterly reports. Even without the charges, the net loss for the first six months of 1990 was $24.3 billion.
The total net loss for 1990 was $193.5 million, according to Kemper Corp.'s 1990 annual report, with all but $32.4 million of the loss coming from special charges.
Mr. Boris said the overall effect of the restructuring amounts to a pre-tax savings of $75 million.
A former Kemper executive who left the firm during the restructuring period said it is too early to tell whether the changes will bring the company long-term profitability.
"What was done was logical, now it's just a question of whether it will work," the former official said. "Some of the firms that they had bought had never been profitable for them. They're showing some profit now, but this has been the best year for the market in a decade, so that might not tell the full story."
Perrin Long, director of research for First Michigan Corp. and a former securities industry analyst, said there has been discussion within the industry that the restructuring was done to make the securities operations more attractive to a potential buyer.
Mr. Boris categorically said the securities group was not for sale and that the restructuring would not have taken place unless Kemper planned to stay in the business.
"I get a little frustrated with that constant rumor," he said. "I can tell you flatly we have had no discussions with other organizations about merging with them or being acquired by them."
He also stressed that financial services, including the securities group, are more important to the company now than ever before. In 1980, 76% of Kemper Corp.'s revenues were derived from property and casualty insurance and less than 1.5% from investment services, Mr. Boris said. In 1990, the revenue mix was 17% property and casualty insurance and 46% investment services.
Robert Riegel, an assistant vice president in the insurance department at Moody's Investors Service, said both Kemper Securities Group and Kemper Financial Companies Inc. provide the parent company with a good mix of businesses. Kemper Corp. also has life insurance, reinsurance, and property-casualty insurance companies.
"It helps lower the risk profile of the company as a whole," Mr. Riegel said. "The insurance business is cyclical, and being diversified with both the asset management and broker-dealer businesses is helpful during the down cyles."
Despite the centralization of retail distribution activities in Chicago, municipal underwriting is one area in which much of the activity will be generated at the local level, Mr. Boris said.
"We were pretty pleased with what we saw there," he explained. "Part of the reason we acquired those firms was the strong regional heritage and the strong relationships that had been built up on the local level."
In the field of municipal underwriting, Mr. Boris said Kemper would strive to continue to be a leader in education bond issues. In 1990, the firm ranked first in the industry in the number of education bond issues for which it served as senior manager or manager -- 78 as senior manager and 162 as manager, according to Securities Data Co./Bond Buyer.
Mr. Reedy, head of public finance, said the main result of the restructuring was the decision to pursue "top-to-bottom" coverage in its regions by competing for larger state and city issues.
"We want to keep the core of local issues, but we also want to generate more on the dollar volume side," he explained. "For example, we want to do a $ 3 million issue for Whitefish Bay, Wis., but we also want to compete for the larger state of Wisconsin issues."
In 1990, Kemper was the industry leader in the number of tax-exempt issues at 312, but was 15th in dollar volume at $1.85 billion, according to Securities Data Co./Bond Buyer.
Mr. Reedy said the key moves made to achieve top-to-bottom coverage in Kemper's regions has been the additions of five new public finance managers in a little more than a year: Kenneth Cory on the West Coast; Steven Binder in the Rockies; Richard Allen in Michigan; John Lee in Ohio; and David Shaw in Indiana.
The relationships developed by the regional divisions over the years are important in drumming up business, he maintained.
"The days of when a banker can fly in from New York to Lansing, for example, to wrap up a deal are over," Mr. Reedy said. "Local officials want to deal with the people who are there, and that is one of our strenghts."
Still, he said, the Chicago office coordinates activities and has overall control of the regional divisions' deals.
"If there is a certain housing issue in California, and one of our people in Chicago has a speciality in that area, the person in Chicago is going to be working on that issue," he said.
The continued addition of experienced bankers also is a priority, Mr. Reedy maintained. The firm has 55 public finance bankers now, about 10 less than when the restructuring began.
Mr. Boris said he is confident that the restructuring will prove to have been the right move.
"I think what we have gone through here in the past 18 months has laid the foundation for us to develop into what I hope will be the model retail firm of the 1990s," he said.
Mr. Long said that while the jury is still out, the restructuring appears to have been a positive development.
"If nothing else, they've brought themselves under a single entity with their trading operations in Chicago and can say they have a national sales force," Mr. Long said.
