DALLAS -- A Wall Street firm will underwrite a cash management program for Oklahoma schools in the first serious challenge to the dominance Stifel, Nicolaus & Co. has over the lucrative and controversial business.
Dean Witter Reynolds Inc. and St. Louis-based Stifel have been courting schools in the four weeks since the first meeting of an Oklahoma commission overseeing cash management programs.
"We hope to be able to offer a very competitive program," said Jorge Garza, managing director at Dean Witter.
The two firms began marketing their investment plans after the three-member Oklahoma Commission on School and County Funds Management voted Oct. 22 to push back the application deadline for the fiscal 1993 program by two months, until Feb. 1.
In an Oct. 29 letter, Stifel solicited officials to sign an enclosed resolution authorizing the firm to prepare an application to the commission to participate in the cash management program.
But the following day, Bowles Financial Group, a financial adviser to several Oklahoma schools, announced its program with Dean Witter.
The firm also advised districts not to "prematurely give anyone blanket approval" to represent them.
John Piercey, senior vice president at Stifel in Tulsa, said his letter and resolution would not bind any district to use his firm's cash management program.
"The resolution would only allow us to submit an application on behalf of the district," he said.
Despite the new oversight, local officials will still decide which program to use.
"There is no sanctioned program." said Jim Joseph, Oklahoma bond adviser and chairman of the new commission. "No one is licensed by us."
The commission was created by the Legislature last spring following allegations that some Oklahoma schools were over-issuing notes to invest in the cash management program.
The program is meant to help districts ease cash flow problems.
Besides spurring new oversight and limits on the program, the controversy scared away many Oklahoma schools from the Stifel-run program this year.
After two cash management programs peaked at $524 million in 1990, participation fell this year to $305 million. That includes a $180 million program for schools.
"We feel like we have a positive, solid reputation and that's going to assist us in getting business," said Mr. Piercey, who believes the new oversight will give the program more credibility. "We don't see that it will do anything but give a lot of people more comfort with the program."
Dean Witter's Mr. Garza said he is not interested in marketing his program by attacking a competing program. "I don't think that gains anything," he said. "We're not interested in exploiting any kind of controversy that exists."
State officials believe that competition between two strong programs should let local officials choose between better yield and lower costs in what has been a highly lucrative business dominated by Stifel.
"There's a limited number of differences you can have in this program ... but it's always good to have more than one," said Mr. Joseph. "I believe there could be three of four [note] programs and that would be good."
Mr. Ganza said Dean Witter is anticipating a $100 million program that he believes will offer a better yield because of the Wall Street firm's ability to sell one-year notes to institutional customers with high-quality letter of credit backing.
Also, he said the costs of underwriting the program will be lower. "I think that costs that were there in the past won't be possible now," he said.
During the first three years, the Stifel program generated $16.4 million in third-party fees, with $6.8 million going to Stifel, Nicolaus & Co. for underwriting.
For those who criticize past programs as being too profitable, Mr. Piercey responds, "Lucrative is in the eyes of the beholder."
With new oversight, few expect the cash management program will return to its peak level. Mr. Joseph said qualifying schools can invest a maximum of 40% of their annual budgets in the program. In the past, there was no such limit.
Further, the new commission will review applications to determine if a district qualifies and the level of its participation.
"The real intent is to make sure things are being done in the public interest," he said. "We're trying to ensure that all the t's are crossed and the i's are dotted."