Lebenthal & Co. is closing its public finance department, officials at the firm said yesterday.

"This was a business decision based upon the fact that while this relatively new department of origination of public finance deals had achieved some success, as we reviewed activities and returns we received compared to the underwriting risk, capital investment and effort, it made no sense to continue this business," said Peter J. Sweetser, Lebenthal's president.

The firm plans to continue to be active as a co-manager as part of its traditional role as a retail brokerage firm, Sweetser said.

Frances A. Walton, managing director of public finance; Kristin M. Holm, associate managing director; Craig Ayers, an analyst; and Mary Guzy, a secretary, were laid off as part of the move away from underwriting.

Walton joined the firm more than one year ago after serving as manager of the cash, capital, and debt management division in the treasury department of the Port Authority of New York and New Jersey. Holm was an analyst at Merrill Lynch before joining Lebenthal in 1991.

"I would expect and I hope that they find positions in public finance with other firms," Sweetser said. "Our decision in no way reflected the capability or lack of capability of any of these people. It was strictly a business decision."

As a small, mostly regional player in underwriting, Lebenthal was book manager on only one issue last year, totaling $8.1 million, according to Securities Data Co.

Through September of this year, the firm had underwritten only one offering, the New York State Dormitory Authority's sale of $54.9 million of so-called mini bonds, according to Securities Data. In addition, a subsidiary of Lebenthal, the Ad Agency, coordinated the advertising campaign for the Dormitory Authority's mini bond deal.

The mini bonds, which the Dormitory Authority sold through Gov. Mario Cuomo's New York Savings Bond Program, were criticized as costly and ineffective by New York State Assemblyman John J. Faso. Sweetser, however, called the program one of the public finance department's "biggest successes" and said he expects Lebenthal to be involved as a seller when similar mini bond borrowings, now being considered by other New York issuers, are brought to market.

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