The Cincinnati Enquirer from Cincinnati, Ohio • Page 45

NYSE F-2 NASDAQ F-3 AMEX F-4 I 1 QUIIMN F-5 ZCJT0.7: KERRY KLUMPE, 369-1009 THE CINCINNATI ENQUIRER TUESDAY, NOVEMBER 19, 1985 ortgage Company Closes Doors In Maryland Portfolio 1 I i j. I 1 i 1460 1440 1420 i i4ooj-n. Lnu 1380. 1360-UL BY PATRICK BRESLIN The Associated Press BALTIMORE The offices of a midsize national mortgage company were scoured Monday by E.F. Hutton representatives trying to protect their company's interests, while Maryland officials tried in vain to subpoena documents.

First American Mortgage accused in a federal lawsuit Friday of misappropriating millions of dollars of Hut-ton funds, was closed Monday and appeared to be out of business, said Assistant State Banking Commissioner Henry L. Bryson. "There's no one to serve the subpoena on," Bryson said. "All of the officers have resigned, and Mr. Michael H.

Clott, the principal, has allegedly taken off for parts unknown. We have no idea where he is. There are no employees left." BRYSON SAID employees were told Friday that First American did not have enough funds to make that day's payroll. However, Bryson said, the firm has not filed for bankruptcy. "They've closed their doors.

I can only assume from that that they're out of business," Bryson said. First American did business by issuing mortgages to individual homeowners and then selling packages of mortgage deals to major institutions, including E.F. Hutton Mortgage Co. of Little Rock, and the 10 other institutional investors, which filed the suit. First American was retained to collect the monthly mortgage payments and send the funds to the main investors.

Instead, First American is accused of illegally diverting $150,000 a month since 1984 that those investors should have received. In addition, Hutton claims that $1.2 million that it paid First American to buy new mortgages was misappropriated, and other improper fund transfers are charged. U.S. District Judge Alexander Harvey II Issued an order Friday freezing First American's assets. A CALL to Clott's suburban home was answered Monday by a woman who took a message, but did not know where Clott was.

Clott, owner and chairman of First American, did not return the call. Bryson said Clott's housekeeper had not seen him. Bryson said Banking Commissioner Margie Muller issued a subpoena Monday requesting documents pertaining to the Hutton allegations. Without a legal representative to serve that subpoena on, Bryson said, state officials were helpless to obtain information. Bryson said the state has "no idea" how much money would be involved in the dispute between Hutton and First.

American. Hutton issued a statement saying it owned about $13.6 million in First American mortgages. Bryson said Hutton was in the proc- ess of shifting those accounts to another mortgage company, J.I. Klslak of Miami, to process them instead of First American in the future. For that reason, Bryson said, Hutton was able to obtain a subpoena for access to First American's downtown Baltimore executive office.

Bryson did not know who issued the subpoena, and there was no record with the federal court clerk. "I SENT one of my examiners down there, and my examiner was observing Kislak just opening documents boxing them," Bryson said. Bryson said First American is licensed by the state banking commisr sioner as a mortgage broker and a mortgage banker. He said the banking commissioner will investigate the allegations and will refer any evidence of fraud to the attorney general's office for possible criminal prosecution. Nov.

5 6 7 8 11 12 13 14 15 18 Dow Jones 30 Industrials High And Close (by white dot) anks Taking On Brokerages Newport National Erratic Day Still A Record Monday went into the books as a mixed day on Wall Street as the stock market churned through an erratic session. But a strong showing by many blue-chip issues near the close enabled the Dow Jones industrial average to post a record closing high, its ninth in the last 14 trading days. Dow Jones' average of 30 big-name stocks gained 4.93 to 1,440.02, surpassing the previous closing peak of 1,439.22 reached Thursday. Other, broader market indicators remained a bit short of last week's highs. Volume on the New York Stock Exchange tailed off to 108.36 million shares from 130.24 million Friday.

FINANCE TREASURY YIELDS RISE: Yields on short-term Treasury bills rose in Monday's auction, with three-month bills hitting their highest level since early August. The Treasury Department sold $7.4 billion in three-month bills at an average discount rate of 7.24, up from 7.21 last week. Another $7.4 billion was sold in six-month bills at an average discount rate of 7.26, up from 7.23 last week. The rates were the highest since three-month bills sold for 7.3 on Aug-. 5 and six-month bills averaged 7.3 on Nov.

4. DEVELOPMENT BUILDING PLANNED: Developer Donald Trump announced plans to construct the world's tallest building, a 150-story tower, at "Televi ft- I I 1 11 KX BY JOHN J. BYCZKOWSKI The Cincinnati Enquirer With investment firms offering checking accounts and money market accounts that look a lot like savings accounts, the banks are fighting back. Three years ago, a wave began of banks offering discount brokerage services low-priced stock-trading services. The banks have now staked out their territory.

Some 3,000 banks nationally offer discount brokerage services. "We think we've got a transaction volume as good as anybody's in town," said Ron Blan-kenbuehler, a vice president at Central Trust Co. in Cincinnati, who overseas the bank's eight-man securities division. He said Central Trust has signed up 1,600 new accounts since May. Just how much of the daily trading of stocks is done through banks is unknown.

Mark Coler, president of Discount Brokerage Advisory Services of New York, a consulting firm, said 20 of the retail brokering business-comprising individuals and small institutionsis handled by discount brokers, and more than half the discount brokers in the nation are owned by banks. So, Coler said, "I'd say (banks) are doing better than 10 of the business." BUT, HE said, "some of the early expectations were unreasonably optimistic." Banks thought they could build up the business faster than was possible. As a result, some banks considered pulling out of the business when, in fact, they were on target to turn profitable. Overall, banks have done well in the discount brokerage business, Coler said. The most common problem in that business is that "bank management doesn't give (the brokerage service) sufficient support.

They expect them to make money from Day One," Coler said. He said banks shouldn't expect to make a profit before two or three years in the business, though some Sun Belt banks-in areas where there are a lot of clip and has been for some time." And though 70 of the customers for that service are depositors, Banc One didn't get into the business just to hold onto Its big depositors. "I think we should be offering a full range of services to our customers," Axelrod said. "It should not be a loss leader." FIFTH THIRD Bancorp, treasurer P. Michael Brumm said the bank's brokerage service has been growing "at an extremely rapid pace." The clientele is "almost exclusively" Fifth Third depositors, and "has been consistently profitable." At Central Trust, Blanken-buehler said the service was reorganized in May, and now is not primarily concerned with landing Central Trust depositors as clients.

He said Central is going after investors who make bigger to 2,000 shares at a time. As a result, 40 of the brokerage service's clients are not Central Trust depositors. "We think we've been pretty successful at penetrating the large-trader market," Blanken-buehler said. The cost of promoting the business to acquire those clients has reduced prof-Its, tut he said he expects those efforts to pay off next year. The American Bankers Association has been fighting a recent ruling by the Securities and Exchange Commission that bank brokerage services fall under the SEC's domain, and must register with the SEC.

The ABA contends that the cost of that regulation for the banks will be steep, with registration costing up to $500,000 in legal and other fees for some large banks. ABA spokesman Fritz Elmendorf said this may force some banks out of the business. But neither Central Trust, Fifth Third, nor Banc One said those fees would be large enough to discourage them from continuing in the brokerage business. Bought Cincinnati Bank Crosses State Line THE CINCINNATI ENQUIRER First National Cincinnati Corp. will become the third Ohio bank holding corporation to jump into the Kentucky market, as the company said Monday it plans to buy Newport National Bank in Newport.

Newport National, owned by New Bancshares has about $110 million in assets and four branches, according to First National spokeswoman Mary Lou Kohne. At the end of 1984, the bank had $96 million in assets, $86 million in deposits and $8 million In capital. NEWPORT NATIONAL has offices at 810 Monmouth Newport; 7630 Alexandria Alexandria; South Fort Thomas and Highland Fort Thomas, and 10th and Columbia Newport. Patrick J. Klocke, president of New Bancshares, said the acquisition will improve Newport National's lending practices.

He said that in the past, if a loan was too large to take on, he would ask a Cincinnati bank to participate in the loan. The invited bank would usually take a rather antiseptic view of the loan, Klocke said, Judging it strictly on its value. Now, First National Bank, as a partner In the business, will be "more willing to look at the total relationship with the borrower," Klocke said, resulting in a fairer Judgment of the loan. If the acquisition Is approved, it will tighten the race for banks in Campbell County. By Kentucky law, banks cannot branch across county lines.

The only way to get into business in a county is by buying an existing bank. Fifth Third Bancorp of Cincinnati and Huntington Bancshares of Columbus have also bought Campbell County banks. sion City," a proposed complex of studios, apartments, stores and parks Trump said would keep the TV industry in New York City. The triangular skyscraper would rise 1,670 feet, about 210 feet hitrher than the The Cincinnati EnquirerAnnalisa Kraft current record- TRUMP holder, the 110-story Sears Tower in Chicago. Trump said the complex would "catapult New York into the pre-eminent position in the television industry for decades to come." RON BLANKENBUEHLER, right, a vice president at Central Trust consults with William L.

Donahue, a securities analyst. Focus On Banking business helps service the bank's largest depositors, giving them another reason to keep their money in the bank and not take it to another bank or investment firm, he said. Arnold Axelrod, assistant vice president at Banc One in Columbus, said that bank's 2Vi -year-old discount brokerage business has "grown steadily" and has been profitable for some time. "It's going at a nice retirees-have turned a profit in a matter of months. Also, the banks that are discouraged by the business often don't look at its "external benefits," Coler said.

The brokerage Casino Stocks Engulfed By Consolidation Wave Directors Resign After Zonic Evaluates Liability Insurance EARNINGS FRISCH'S PLUNGES: First quarter net earnings at Frisch's Restaurants Inc. plunged 46 to $887,568, or 20 cents a share, from $1.65 million, or 38 cents a share, for the same period last year. Total revenues for the 16 weeks ended Sept. 22 rose 1 to $41.01 million, from $40.47 million last year. Total sales were a record $38.86 million, also up 1 from last year.

The Cincinnati-based restaurant chain blamed the lower earnings mainly on higher labor costs as well as higher insurance and depreciation charges. Slower sales growth was blamed on sluggish summer sales, which Frisch's said was a national trend. Slower sales at Frisch's Roy Rogers Family Restaurants were also cited. TURNER NUMBERS MIXED: Turner Broadcasting System Inc. reported a $2.4 million profit for the third quarter of 1985, but Ted Turner's communication empire showed a $5 million loss for the first nine months of the year.

TBS reported it sold its common stock in CBS a unsuccessful Turner takeover target, for a net gain of $1.7 million. Considering legal and other costs and tax benefits, the company said the CBS transaction brought an extraordinary gain of $627,000 in the quarter ended Sept. 30. 1 fa IIIWrnmiiWHWIIIiil-Wllili felff 1 t.m.-'mm.-r. BY TODD S.

PURDUM The New York Times NEW YORK-The recent flurry of financial activity in the casino industry, including at least two major sales, two bankruptcy filings and the prospect of still more sales, reflects a period of consolidation and reorganization in a maturing business, analysts and casino representatives say. And while industry experts say many of the recent transactions involving casinos have been coincidental, at least one analyst said declining interest rates and lower inflation had increased the appeal for potential buyers of gaming companies, which usually have hefty cash flows and large borrowing capacity. "In general, the casino business is a large cash flow producer, and as interest rates continue to fall, the value of that cash flow rises," said Mark Manson, an analyst with the Donaldson, Lufkln Jenrette Securities Corp. "The economic characteristics of the casino business have become more attractive." AS A result, Manson said, poorly managed or under-performing casinos have become takeover targets for the stronger companies. "The increased attractiveness and the appeal of large cash flows seems to be leading to a consolidation in the industry, where those who are successful in the industry and belive in it can go out and buy others that are attractive to them," Manson added.

"The strong are getting stronger rapidly, whereas the weak are getting bought out." For example, Golden Nugget the highly success-ful owner of hotel-casinos in Atlantic City and Las Vegas last week offered to buy the Dunes Hotel and Country Club in Las Vegas, whose managing company recently filed for protection from Its creditors under Chapter 11 of the federal bankruptcy laws. Also last week, the Atlantis Casino Hotel in Atlantic City filed for Chapter 11 protection, and it is reportedly for sale. AT THE same time, Harold Vogel, an analyst with Merrill Lynch, Pierce, Fen-ner Smith noted that slower growth in the Atlantic City market, which has become a $2 billlon-a-year business since it started in 1978, may be driving some casino operators to diversify their holdings. He said that might be one factor in the Bally Manufacturing decision to buy MGM Grand Hotels which has a strong presence in Nevada. A similar motive may have been behind Golden Nugget's unsuccessful bid for a stake in the Hilton Hotels Corp.

last spring. earned $6,718, or less than one cent per share, on sales of $941,287. Zonic has experienced serious cash flow problems in the past and is using deferred payment schedules with certain creditors. Nevertheless, Zobrist says he doesn't understand why his company can't get liability insurance. "We've never been sued, and never been close to getting sued," he said.

Mary Zavada, a spokesman for the Insurance Information Institute in New York, said an increasing number of companies are in Zonic's position. "It's one of the areas where it's becoming difficult to obtain Insurance, along with liquor liability and medical malpractice," she said. SHE SAID tough times in the property and casualty insurance business are one reason why rates are going up. The industry lost $3.8 billion overall in 1984. she said.

Also, she said, corporations are increasingly the subject of lawsuits, and defending officers and directors In such cases Is expensive, "There are so many more lawsuits, and insurance companies are paying millions of dollars to defend their clients," Zavada said. "I don't think it's impossible to get (officers and directors) Insurance, but it's more difficult and it's more BY GREGG FIELDS The Cincinnati Enquirer Four outside directors of Zonic Corp. have resigned because the company can no longer afford the spiraling cost of liability insurance for its officers and directors. The Milford manufacturer of computer hardware and software used to monitor industrial production equipment will operate with a three-member board of inside directors. (An outside director has no association with a firm beyond a seat on the board, while an inside director is usually an officer of the company.) Gerald Zobrist, Zonic president, said he decided reluctantly to ask the four to resign.

But he said the high-tech company had no choice. "OUR RATES were going up ten-fold," Zobrist said. "We were paying right around $25,000, and we were getting policies quoted at a quarter of a million dollars." Zobrist said the company won't carry liability insurance at all this year. The four outside directors were Martin S. Orland, president of AMF Venture Capital, William Kohlhepp, Zonlc's outside legal counsel, Joseph F.

Zobrist, Zobrist's father and president of Bell Optical and Joseph Pehoushek, a Procter Gamble executive. Inside directors are Zonic President Zobrist, T.A. Dunlap, executive vice president, and LITIGATION LAKER SETTLES SUIT: A $30 million settlement of a class action arising from the collapse of Laker Airways was reached in a Washington court, British Airways announced. It follows two separate settlements of court action brought by liquidators of Sir Freddie Laker against BA, TWA, Pan Am and seven other trans-Atlantic airlines plus aircraft-maker McDonnell Douglas accusing them of cutting prices in a conspiracy to put his Laker Airways out of business. -Compiled By Dick Benson from staff and wire reports GERALD ZOBRIST decided reluctantly J.B.

Webb, vice president of manufacturing. "Although not as desirable, we will continue with an inside board until appropriate liability insurance can be obtained at a reasonable cost," Zobrist said. THE COST of insurance would have greatly exceeded Zonic's profits. In the six months that ended Sept. 30, Zonic had a net Income of $9,350, or less than one cent per share, on sales of $1.8 million.

In the same period last year it lost $158,441, or eight cents per share, on sales of $1.58 million. In the second quarter, Zonic INSIDE G.D. SEARLE Faces another trial involving the effects of its birth control product, Copper 7. Page F-4. LEGISLATION: To give aid to the ailing Farm Credit System is introduced in Congress.

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