DALLAS - A top executive at the parent of First Southwest Co., Texas' dominant financial adviser, has departed after a rift over the firm's future outside the public finance arena.
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Robert Utley 3d, who teamed up with Hill Feinberg in 1991 to acquire the venerable Dallas-based investment banking and advisory firm, left because Utley wanted to become more active in merchant banking, Feinberg said Friday. Utley, chairman and chief executive officer of parent First Southwest Holdings Inc., couldn't be reached by press time.
"We decided to part ways," said Feinberg, chief executive of First Southwest Co. "The firm wanted to stay in traditional investment banking and Bob wanted to pursue peripheral activities."
Utley's departure sometime in the last few weeks followed that of First Southwest Holdings president George Bayoud Jr. earlier this year. Bayoud, a chief of staff for former Gov. Bill Clements, joined the firm in April 1996.
When Feinberg and Utley set up a holding company in 1991 to buy First Southwest Co. for an estimated $15 million from the heirs of long-time owner Decker Jackson, their plan was to expand the company's reach beyond public finance. At the time, they were more or less equal shareholders in the venture, but current ownership data was unavailable.
Just what the move will mean for First Southwest Co. is unclear, but Feinberg said the company is intent on maintaining its focus on underwriting and advisory work, long its mainstays. And he said Utley's departure was unrelated to ancillary businesses' problems that the firm disclosed in its annual report to the Securities and Exchange Commission in November.
With its acquisition of Houston-based Masterson Moreland Sauer Whisman Inc., the state's second-largest financial adviser, in January 1996, 50- year-old First Southwest Co. solidified its role as the state's dominant adviser. In the first quarter of 1997, the firm advised issuers on Texas deals worth $1.6 billion.
But First Southwest Co. also has branched out both geographically and in the types of business it handles. Aside from branch openings in California, Florida, and New York, earlier this year a subsidiary of the firm, First Southwest Asset Management Inc., teamed up with Texas Commerce Bank to win the rights to take over management of the TexPool state investment fund. Texas Comptroller John Sharp, who previously oversaw the $6.2-billion investment fund for local governments, hired private managers in February.
That decision came months after First Southwest Co. disclosed a "subsequent event" in its Form X-17A-5 filed with the SEC for the fiscal year ended Sept. 30, 1996.
The report stated that subsequent to the end of its fiscal year, a "correspondent" of First Southwest Co. was forced to temporarily cease operation because of its inability to meet capital requirements and that First Southwest took over its accounts. It didn't name the correspondent.
Feinberg declined to discuss the issue, but sources familiar with the situation said the correspondent was a small firm for which First Southwest provided clearing services.
"Any potential loss, should the correspondent not reopen or any failure by the correspondent or customers to satisfy their obligations, is not currently determinable," the report stated. "Therefore, management of the company is unable to determine if this situation will have a material adverse effect on the company's consolidated financial position."
First Southwest Co. had stockholders equity of $25.1 million in the fiscal year ending last Sept. 30, including $18.1 million of capital and $7 million of retained earnings.
Feinberg denied industry speculation that the problem contributed to Utley's decision to leave, but sources familiar with the firm said the unresolved issue is complicating efforts to sell Utley's stock to other employees.
Feinberg said that it was "too premature" to talk about efforts to sell Utley's stake in the company. But he confirmed that some shares might be sold to other employees. "There's been a lot of interest inside the firm in buying this stock," Feinberg said.
