Barely a year after opening a stock brokerage office in Orange County, U.S. Bancorp Piper Jaffray has decided to shut down its operations here completely.
Piper Jaffray’s brokerage office in Newport Center will be closed as of Oct. 31. In total, 21 brokers and nine administrative staff will be laid off.
“They are pulling out of OC,” said a broker at Piper Jaffray, who did not want to be named. “It is a surprise but not a shock.”
Elizabeth Child, a spokeswoman for Piper Jaffray, said, “Given the market conditions, which have been extremely difficult, we had to make a difficult decision.”
“We are always looking for ways to cut costs but there are no plans to consolidate our operations” elsewhere, she said. A La Jolla office that opened at about the same time as the OC operation remains in business.
Piper Jaffray is a division of Minneapolis-based U.S. Bancorp Inc., the eighth-largest financial services holding company in the United States, with assets in excess of $160 billion. U.S. Bancorp bought Piper Jaffray in 1997 after the Financial Services Modernization Act allowed banks to broaden their offerings into areas such as brokerage services and insurance. Piper Jaffray now has 120 offices nationally, most of them west of the Mississippi River.
The decision to close Piper Jaffray’s OC office comes at a time when most brokerage houses have been cutting their brokerage staffs because of the declining stock market and lackluster market for initial public offerings.
But Piper Jaffray had just opened the office a year ago and spent heavily in recruiting brokers from other firms. The brokerage firm had opened its offices in Orange County in October last year by hiring four brokers from E*Offering. The firm ramped up its operations in the next 10 months. From February to April, Piper Jaffray hired five brokers from Newport Beach-based Roth Capital Partners LLC.
Brokers were paid large up-front money to join Piper Jaffray. To hire a top-performing broker, the brokerage house paid up-front money to brokers in the form of an initial interest-free loan. As an incentive for the brokers to stay with the firm, the loan would have been written off over a period of five years.
“They had a deliberate effort to come into California and establish a presence here,” said a broker. “They opened up their check book and basically were recruiting pretty strongly some talented brokers and were busy writing checks to bring the talent over,” he said. “They were successful in filling out one and a half offices.”
The company said at one point that it wanted to open eight more offices in Southern California.
But Piper Jaffray’s decision to close its local operation did not come as a surprise to many. In early August, the brokerage house gave an early warning to its brokers that it was interested in cutting costs when it consolidated its Newport Center Drive office with that in MacArthur Court.
“There were many body languages and signs from the management that the made us believe something was coming,” said a broker, who added that after the consolidation, Piper Jaffray put a freeze on hiring brokers in Orange County.
Industry sources said Piper Jaffray’s decision to expand into Orange County came at the wrong time: Piper Jaffray had shelled out close to $15 million loans to hire brokers right around the time when the stock market was near its peak. Then the market tanked, and the brokers could not generate the same amount of business.
Along with lower production from brokers, Piper Jaffray was faced with the burden of writing off the loans to brokers.
“For another four and a half years they were looking at this debt to be written off,” which meant the branch would not be profitable for some time: said a broker.
Instead, sources said, the firm decided to shut down the OC operation and take a one-time charge. As a part of a severance package, repayment of the loans to its 21 brokers was waived, they said.
“They had to take a draconian action,” said an industry observer.
While the OC closure could just be Piper Jaffray’s cutting its losses after a mis-timed move, pulling out of one of the wealthiest counties in the U.S. could also portend a bigger move in the works.
Earlier this year, U.S. Bancorp completed its merger with Firstar Corp.
“There is still a write-off pool that’s open for that,” said a Piper Jaffray broker. “So they are taking all of the debt and sticking it in the write-off book and cleaning up the books, and now they have a clean slate going forward for some future mergers and acquisitions, so that debt won’t be carried forward into the next deal.” But, he said, U.S. Bancorp has denied rumors that it will spin off or sell Piper Jaffray.
“We had no complaints with Piper Jaffray. Unfortunately we got caught up in being a statistic,” said a broker. “The bummer for all these folks is that, yeah, the debts were forgiven, but everyone came to this firm with the intention of retiring from here.” n
