It's news that Baltimore brokerage Ferris, Baker Watts is selling out to a rival. It's bigger news that it didn't happen 10 years ago.
Give the firm credit for longevity, even if industry fusion finally claimed it. It might have stayed independent even longer, but its own missteps accelerated the inevitable.
Ferris' absorption by Minneapolis-based RBC Dain Rauscher marks another step in a consolidation process that began in 1975, when Congress allowed brokers to cut the price of stock commissions, and accelerated in the 1990s with the fall of barriers between banking and brokering.
Led by patriarch George M. Ferris Jr., who owns 26 percent, the firm navigated the obstacle course better than many. The greatest bull market in history, which began in 1982, lubricated bottom lines and delayed the need for brokers to seek partners even though they were making less money per stock trade.
(There were exceptions. In 1988, Baltimore-based Baker Watts, which had run into trouble with oil and gas partnerships, merged with Washington-based Ferris & Co., founded by George Jr.'s father.)
Perhaps Ferris' greatest promoter was the late broker Julius Westheimer, who wangled a column in The Evening Sun and regular appearances on Wall Street Week with Louis Rukeyser, the popular public television show. Westy's ebullient predictions matched a bubbly market quite nicely - until things collapsed after 2000. Meanwhile, clients called in droves.
Through the 1990s and 2000s the firm also had a good business underwriting stock and bond issues. That kind of product was migrating to larger players, but Ferris pitched itself to companies and municipalities overlooked by Wall Street.
The forces of fusion, however, were growing. One problem was the Internet, which allows investors to bypass brokers and pay $10 or less for a trade. At the other end of the scale were big houses such as Merrill Lynch and Smith Barney, which could swipe star brokers and offer clients more original research.
Ferris' peers continued to disappear into the arms of larger suitors.
In recent years regulation also has also pushed firms toward marrying. As financial firms assumed enormous proportions, so did the frauds they periodically perpetrated on their customers and the safeguards Congress required as a result.
Sarbanes-Oxley and other regulations requiring armies of lawyers and accountants were tailored for firms with 3,000 brokers, not 330, which Ferris has.
Most of the underwriting business now goes to big players, too. Maryland companies and municipalities don't necessarily turn to the hometown house when they want to tap the markets.
Much of Ferris' stock issuance in the past few years has involved small energy companies and "blind pools" - acquisition vehicles in which investors have no idea what kind of business they'll end up owning.
Baltimore rival Legg Mason, which once closely resembled Ferris, solved the bigness problem by starting mutual funds, hitting money-management home runs and eventually dumping the brokerage business altogether. Ferris never took that road, perhaps wisely, but it looked increasingly exposed.
What financial trends began was finished by fraud and, perhaps, by the 80-year-old George Ferris' desire to reap a lifetime's rewards.
Stock manipulation by client David A. Dadante, through trades handled by Ferris broker Stephen J. Glantz, made the firm vulnerable and perhaps eager for takeover offers. Dadante and Glantz have pleaded guilty to criminal fraud charges and were sentenced to prison.
Ferris hurt itself by seeming to take its sweet time investigating Glantz and his client, despite warning flares. The fraud continued for months after internal watchdogs expressed concerns to top Ferris executives about Dadante's account, The Sun has reported. In late January Ferris offered a $16 million settlement to Dadante's victims, who had invested in a fund that investigators later determined was a Ponzi scheme.
The commitment to buy Ferris by Dain Rauscher, owned by Canadian banking company RBC Financial, comes before the settlement is accepted or scrutiny by regulators is finished. This suggests the process is winding down, although surely the agreement is flexible in case the parties underestimated Ferris' liability.
It's unclear whether the deal will be good for either firm or for customers. Banks have a long history of botching brokerage acquisitions. The cultures are different, and it's easy for star brokers to defect.
But it makes the Ferris operation big enough to go forward. And if Dain Rauscher is quicker to cut off a dicey customer than Ferris was, so much the better.
jay.hancock@baltsun.com