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Brokers upbeat over lower rates


Brokerage and mutual fund firms should love Federal Reserve Chairman Alan Greenspan when he talks about the possibility of lowering interest rates further.

The declining rates during 1991 and now early '92 have been a boon to sellers of stocks and bonds, now sought after in increasing numbers by millions of folks who usually have large chunks of their savings in certificates of deposit at banks and savings institutions.

The result is that firms such as T. Rowe Price Associates, Alex. Brown and Legg Mason have been reporting record sales and profits despite the recession.

For T. Rowe Price, one of the nation's largest mutual fund management companies, earnings jumped 45 percent, a small increase compared with the gain of nearly seven times for Alex. Brown. Legg Mason completed nine months of its fiscal year on Dec. 31 with earnings up nearly 55 percent on a 16 percent revenue growth.

Not only are brokerage and mutual funds benefiting from a huge influx of new customers seeking higher returns on their money, RTC

but their stockholders are seeing their investments greatly enhanced as the firms' own share prices climb.

Many of the new investors are conservative savers -- almost two-thirds of the $119 billion in mutual funds sales last year were in bond funds -- and many were entering the world of stocks and bonds for the first time.

They have been, practically, pushed out of CDs and savings accounts because of the lowest interest rates paid on their savings that many can remember.

Steven Norwitz, vice president of T. Rowe Price, said his firm added 100,000 new accounts last year, to almost 2 million total -- one individual may have several accounts (funds) -- and that cash flowing into funds just in January rose 60 percent from the amount in December. T. Rowe Price funds took in $500 million in January, an increase of more than 2 percent in a single month.

Switching from non-fluctuating savings to those that do move up and down requires a change in the attitude of savers, but the risk has been tempered by the availability of vehicles such as Price's Adjustable Rate U.S. Government Fund, a pool of adjustable-rate mortgages with interest rates reset twice a year. Although these new investors in securities are at least moderately concerned about risk, they are also aware of the risk in tying up money in low-yield CDs.

Legg Mason marketing director Geraldine Leder speaks enthusiastically of the swift growth in that firm's U.S. Government Intermediate Fund, which dates only to August 1987 and had reached $74 million at the beginning of 1991. It's now at $224 million, having tripled in a year.

"When interest rates are reasonable," Ms. Leder notes, "people will keep their money where it is. But they move their excess money when the rates go too low."

Legg Mason chose the federal income tax deadline date of April 15 last year to launch a Maryland Tax-Free Income Trust that has already climbed to $78 million.

Alex. Brown, the oldest U.S. investment banking business -- it was founded in 1800 -- was tops in the nation last year in initial public offerings including the popular Nuveen tax-free funds. Business has been so brisk at Alex. Brown that fourth-quarter revenues shot up 86 percent and earnings rose 400 percent.

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