Mabon Securities Corp.'s municipal finance group, all but decimated by departures in 1991, may return to life.

"We're trying to build up slowly," Salvatore J. Trani, the firm's chairman, said in a recent interview.

The firm is interested in municipals again because the election of President Clinton has investors worried about higher federal taxes, Trani said.

"We've seen over the last seven to eight months that the municipal business has been profitable," he said.

Municipal underwriting spreads have not improved significantly during that time, but volume has. Underwriting desks are busy, a number of investment banks have selectively added to their municipal finance staffs, and some mutual fund companies have launched their first ever tax-exempt funds.

Mabon has not served as a senior manager of any tax-exempt offerings since the beginning of 1989, according to Securities Data Co.

So far this year, the firm has served as co-manager for 21 offerings totaling $65.3 million, ranking 307. Last year the firm served as co-manager of 24 offerings totaling $150.1 million, but ranked only 293 with a 0.1% market share. That was a big drop from 1989, when the firm was co-manager on $452.2 million of deals and ranked 139.

In May 1991, Mabon merged its tax-exempt bond operations with its taxable high-yield and corporate trading groups. The firm planned to stay active in the tax-exempt markets, with special attention to health-care research, executives said at the time.

The move was prompted in part by the departure of most of the municipal finance department's salemen. research analysts and others. The departures reduced the staff by more than half to about five to six people.

Mabon executives said the departure of Glenn W. Wagner, the director of research and the firm's chief health-care analyst, was the primary reason it decided to scale back municipal operations. His departure was followed by that of several members of the municipal sales staff.

"We only specialized in that one particular area and that was a mistake," Trani said.

But several former Mabon employees said the municipal department's troubles began with management battles that drove out several of its key executives, including the heads of institutional sales and trading. At least one of those executive's departures preceded Wagner's, a former employee said.

"That was the starting point," one former employee said. "We weren't happy with some other people they had in charge, and one by one it just started to fall."

At about the same time, in May 1991, IMI Capital Markets USA Corp. purchased an approximately 51% controlling interest in the brokerage. Mabon changed its name from Mabon Nugent & Co. to Mabon Securities and now acts as investment banking, research, securities sales, and U.S. trading arm for IMI, a subsidiary of Instituto Mobiliare Italiano.

The sale provided Mabon with needed cash, but also worried its municipal professionals since the new, foreign parent lacked familiarity with the municipal market, and was expected to institute changes to help improve the company's financial performance. Some of them asked for a contract guaranteeing that the department would continue to exist for another year, the former employee said. When the firm refused, several of them left.

Since that time, the firm has been involved in the market by participating in competitive underwriting teams. It also does a limited amount of secondary market trading, primarily selling bonds to retail brokers.

As part of its re-entry efforts, Mabon would like to continue to focus on competitive underwritings before moving onto negotiated deals, Trani said. "Our parent wants us to be a well-rounded institution," he said.

Previously, Mabon had been a niche player in tax-exempts. This time around the firm wants move beyond health care and high-yield securities to fashion itself as more of a general market player, he said.

"You get a stigma attached. I would rather be a well-rounded generalist," Trani said, adding that he hoped to have a full-service municipal operation in about one year.

Trani was named chairman of Mabon Securities Corp. in April 1992. He replaced Stephen R. Erlich, who was chairman of Mabon Securities since it was formed in 1991, and chairman of Mabon Nugent & Co. since 1974.

So far this year Mabon has added two municipal finance executives: Robert J. Sarli and Louis E. Ulrich joined the municipal bond department as dealer salesmen in the New York office in April.

Currently, the firm has four executives in its municipal finance department, concentrating on sales and trading. At its lowest point, the firm employed about three municipal finance executives, after the downsizing in 1991. At its height, during the 1980s, the firm had about 20 to 30 municipal finance executives. In the near term, Trani said he would like the department staff to grow to about 10 to 15.

"We do not have enough capital to get involved in [negotiated underwriting] right now." Trani said.

"Once you get the sales force in place, you can build underwriting," he said, explaining that a sales force can help to build a customer base that can later be used to market deals.

In addition, the firm believes it will be less costly to work on competitive deals than on negotiated offerings and that there is less risk involved.

Mabon Securities has about 95 million in capital. In addition to municipals, the firm is involved in equity research and sales, corporate finance, and mortgage-backed and international securities trading.

Ultimately the firm is interested in developing a full-service municipal bond department. said Daniel E. Kornstein, a director in charge of planning, organization, and strategic marketing at Mabon.

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