The 1990s could prove to be one of the most profitable and successful decades for regional municipal bond dealers in the Midwest, according to optimistic professionals in that community.

Those dealers say their firms are poised to take advantage of the financing needs of their home state issuers, as well as issuers outside their region.

The dealers attribute this degree of preparedness to a number of factors, namely hiring and keeping quality personnel; maintaining personal relationships with clients through thick and thin; not venturing into crazy or risky financing schemes; keeping overhead costs down; and staying up to date by slowly incorporating more sophisticated technology, expertise, and distribution networks.

In addition, business opportunities have opened up for the dealers because many Wall Street firms, unable to support bankers or offices there, have retreated from the region or only focus on large deals.

Bright Forecast for the 1990s

"Securities firms in the Midwest are generally optimistic about the intermediate-term future," said Joseph W. Sack, vice president and director of regional services for the Public Securities Association. "What you are seeing is a back-to-basics movement for firms that have been around for a while."

Michael E. Dougherty, chairman of Minneapolis-based Dougherty Dawkins Strand & Bigelow Inc., said, "I am really optimistic. We are really having the first or second best year since the firm started in 1977."

On a broader note, Mr. Dougherty said, "I believe the decade of the 1990s, profit- and client-wise, is going to be the best it has ever been."

Even a veteran public finance banker from Wall Street observed that "regionals are going to get stronger. Major firms are cutting back the size of their staffs, and are not spending a lot of time with state and local officials."

He added, "Regionals are perceived to be on the ground, while New York firms are looked upon as being less stable."

Newspaper headlines over the past 20 months have indicated that there has been a lot of activity among dealer firms in the Midwest, with firms expanding or downsizing staff, adding new offices, or restructuring their departments to better compete.

The headlines also have noted that some Midwest dealers have dropped out of the municipal bond business. The most notable of these firms is Van Kampen Merritt Inc., which earlier this year announced it was exiting the business and laying off 80 employees.

But bad times can only last so long. Recently, firms that have been badly bruised by volatile markets or staff disaffection are healing.

Rodman & Renshaw Inc., a Chicago-based firm that saw its entire public finance department walk out early last year, is slowly making a comeback, said Frank C. Paul, a senior vice president of the firm's public finance group. Mr. Paul was hired by the firm in August 1990 to rebuild the department.

The firm was ranked 160th as a senior manager and 78th as a co-manager in 1989, according to Securities Data Co./Bond Buyer. But with no public finance department, the firm was not ranked as a senior manager in 1990 and dropped to 133d as a co-manager.

Rodman & Renshaw's comeback, however, is noted in underwriting statistics for the first eight months of 1991: It was ranked 222d as a senior manager with one deal and 80th as a co-manager with 58 deals.

"We have four bankers now, and I am lookign for more," Mr. Paul said. "There will certainly be enough business and opportunities -- we may have to work harder and longer hours."

The firm plans to be "strong first in our backyard and work throughout the Midwest," Mr. Paul said, adding that "we are one of the largest fixed-income sales forces outside of New York City -- and we do have to feed our sales force."

At Cleveland-based McDonald & Co., Paul H. Komlosi, first vice president of public finance, said, "There is really nothing magical to where we want to go." The firm was one of the top 10 senior underwriters of Ohio bond offerings in 1990 and in the first eight months of 1991.

The firm is now eyeing expansion into Indiana and Michigan, to take advantage of its retail distribution network there, Mr. Komlosi said.

Municipal Group Spared

Although First Chicago Corp. has pared back by about 1,500 employees, it has hardly touched the municipal securities operation of its Section 20 subsidiary, First Chicago Capital Markets. The subsidiary remains the leading underwriter of Illinois bond issues.

John E. Gilchrist, chairman of First Chicago Capital Markets, said, "We remain very committed to the municipal business" even while the holding company has been paring expenses.

"We have a fairly small professional banking staff, but it is very carefully targeted into health care, general municipals, and industrial development bonds, such as refinancing pollution control bonds" for investor-owned as well as publicly owned utilities, he said. Mr. Gilchrest added that the firm also has developed a speciality for underwriting bonds for 501(c)(3) organizations.

To further advance First Chicago's client services, Mr. Gilchrist said, "We operate our business in an integrated manner where we offer a blend of commercial and investment banking opportunities."

Mr. Gilchrist said he is joined in this effort by municipal veterans, such as Harry Larson, who heads First Chicago Capital Market's municipal bond department, and Clark Burrus, a senior vice president of the First National Bank of Chicago, the commercial banking subsidiary of First Chicago Corp.

All of the dealers agree that one of the most important keys to success in the 1990s municipal business is putting together the right staff. "There is only one ingredient: hiring good people," Mr. Dougherty said.

"A lot of firms come and go," he said. "Our business has grown and succeeded and is prospering as it is now because of quality people."

To that end, he noted the firm's recent hiring of Robert Bigelow, the former head of Kirchner Moore & Co. in Denver. Dougherty Dawkins has now branched into that region, he said, adding that Mr. Bigelow's presence has been instrumental in that expansion. Also, Iowa has become part of the firm's new hunting round, Mr. Dougherty pointed out. There is little competition there, he said, and the state is "next door to us -- they are Midwest people we can identify with."

Perhaps one of the most significant developments for dealers in the Midwest is the way local issuers look at hte firms now as opposed to 20 years ago. Not only can firms such as First Chicago and Dougherty Dawkins handle basic financing tasks, but they also can provide derivative products and underwrite large and more sophisticated deals.

Duke Steenson, managing director of fixed income for Minneapolis-based Piper Jaffray & Hopwood Inc., said that 20 years ago issuers did not believe the firm was capable of underwriting certain types of deals, especially large offerings.

But now, "in enough cases, the thinking has changed," he said, adding that his firm recently served as senior manager for a $142 million state of Montana workmen's compensation issue.

In addition to developing more sophisticated fixed-income departments, Mr. Sack believes regional dealers in the Midwest are doing something else as well. "They are having a lot of fun. They are pleased that they can offer their expertise and services," he said.

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