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Boenning & Scattergood, one of Philly’s last investment banks, moves to restructure or sell off parts of the firm, sources say

After 108 years, the firm's brokers, bankers and research analysts may be going separate ways. Other firms doing consolidation deals in the region include Permit Capital, TriState and Fulton.

Harold F. Scattergood, Jr.,  joined his father, Harold Sr., at Boenning & Scattergood, in 1970. Boenning & Scattergood is breaking up into divisions.
Harold F. Scattergood, Jr., joined his father, Harold Sr., at Boenning & Scattergood, in 1970. Boenning & Scattergood is breaking up into divisions.Read

Boenning & Scattergood, one of the Philadelphia area’s last traditional investment banks and brokerages, is exploring a restructuring or selling off pieces of its business, according to people close to the firm.

The 108-year-old firm, which manages about $2 billion in clients’ money from its offices in West Conshohocken, employed more than 150 investment bankers, stock analysts, and salespeople as recently as the mid-2000s. But it has had fewer than half that number in recent years, according to staff.

Boenning is among the last of what was once a thriving industry of independent, regionally based investment banks, which raised money for companies and helped their owners and other wealthy people and institutions invest their money.

But market changes deeply reduced brokers’ stock-trading commissions, and reforms after the 2008 meltdown made several of Boenning’s businesses and those of its peers less profitable, forcing many to sell operations to larger rivals. Wall Street firms grabbed ever more financing deals, while investors departed to take advantage of the cut-rate investment fees at Vanguard, Charles Schwab and others.

In a memo this spring, Boenning chairman Harold F. Scattergood Jr., 74, the third generation to serve as the firm’s lead owner, told employees he was in discussions with a national firm he did not identify that would make Boenning’s brokerage unit its local affiliate.

Separately, members of Boenning’s investment banking group — which raises money for companies and is headed by Charles “Chad” Hull — is said to be forming a new firm, which would join the handful still operating in the region. Hull did not return requests for comment.

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Boenning’s institutional-trading group has also been in talks with local giant Janney Montgomery Scott, a brokerage and investment bank owned by Horsham-based Penn Mutual Life Insurance Co.. Industry sources declined to be identified because they were not authorized to speak on the company’s behalf.

Janney spokesman Bradd DelMuto said in a statement that “in the normal course of business, we frequently have discussions with professionals who are interested in joining Janney. We have no further comment at this time.”

A Boenning restructuring or sale, if it occurs, would make it the latest in a string of Philadelphia investment banking firms that have realigned in response to changing business conditions that have convulsed regional banking.

It also marks the latest turn of a storied history. Henry Doer Boenning founded Boenning & Co. in 1914, the year that World War I began.

Harold F. Scattergood Sr. joined as a stock trader in 1935. Boenning died in 1943, and Scattergood Sr. became senior partner four years later. In 1969, the firm incorporated as Boenning & Scattergood, combining the names. And Harold F. Scattergood Jr., who joined the firm in 1970, was named chairman in 1985.

For much of its history, the firm focused on local banks, insurers, utilities and other regional firms that preferred to deal with bankers who could meet their needs.

Its research analysts cultivated niche industries — the nation’s leading publicly held water utilities are both based in suburban Philadelphia, and Boenning analysts visited them often and wrote with authority about their deal prospects, as they did about mid-Atlantic bank mergers and issues affecting Pennsylvania property insurers. The company’s stock research enticed niche investors to send Boenning their trades, while Boenning bankers sought the companies’ bond sales and other financing.

Boenning’s longtime owner, Scattergood, 74, has reached the age where an owner often wants to step back and sell the ownership piece, especially if the next generation is not involved in the business, said people familiar with the firm and the family.

A potential buyer for Boenning’s brokerage business is LPL Financial Holdings Inc., a national firm that has acquired numerous local brokerages, according to multiple industry sources.

Joseph Muscatello, head of Boenning’s public finance team, which sells bonds for governments, this year moved to Stifel, industry records show. Stifel, a national firm, based in St. Louis, has been beefing up its East Coast presence. Muscatello did not respond to a call or email for comment. The firm’s capital markets team, meanwhile, continues talking to several suitors.

Investment banking “increasingly places emphasis on scale and expertise. That’s pressured smaller firms to consolidate,” said Andrew Greenberg, founder of GF Data in Conshohocken, which tracks mergers and acquisitions activity in the space.

Consolidation deals

“It’s tough times for these small firms,” said Matt Taylor, commenting on Boenning’s prospects.

Mimi Drake, Adam Landau and Taylor recently merged their firm Permit Capital with Cerity Partners, which manages about $50 billion in assets.

Permit, of West Conshohocken, manages money for wealthy families and individuals, and did the merger last month amid rising compliance and cybersecurity costs. The deal expands Cerity’s reach to 15 U.S. markets. Terms weren’t disclosed.

“You got to get bigger, or you go home,” said Howard Trauger, president of the Bond Club of Philadelphia, and founder of the former Schuylkill Capital Management investment firm, which he sold to Carnegie Investment Counsel of Cleveland in 2015.

Trauger sold amid the challenges of raising enough capital from investors to fund a larger staff just as more Americans were turning to online brokers and index funds such as those sold by Vanguard Group of Malvern and Charles Schwab.

He said the lack of heirs may also be a factor in Boenning’s deliberations. “This is about the aging of the upper-level people,” with few younger people ready to inherit the shops, Trauger added. He also said increasing regulation had the effect of making securities research unprofitable as a sales tool.

“It all boils down to who’s going to pay for research,“ said Trauger. “With the Internet, you don’t need those road trips where you met with potential clients in each city and discussed your best ideas and tried to get them to invest with you. I get research every day from JPMorgan and CFRA. I can hit a button on TD Ameritrade’s institutional service and get all the research I need.”

Banks have also been getting bought up, including Citizen’s purchase of HSBC’s retail banking business, and WSFS’s purchase of Bryn Mawr Trust, at a price of 2.3 times tangible book value, the primary valuation metric used by bank analysts such as Boenning & Scattergood’s own Eric Swick.

“Community banks tend to go for a slightly lower price of 1.3 to 1.5 times tangible book value, and larger banks 1.5 to two times,” Zwick said.

Wall Street giant Raymond James (symbol: RJF) also wrapped up the purchase of Tristate Capital Holdings, a niche Philadelphia securities lender and middle-market commercial bank, at a price of $1.9 billion or about 1.9 times tangible book value, Boenning bank analyst Eric Swick estimated.The deal was brokered by local private equity firm Lovell Minnick Partners in Radnor.

“We have two lines of business, commercial banking and an investment management segment,” said Brian Fetterolf, president and CEO of TriState Capital Bank. Roughly 70% of TriState’s business is securities-based lending, through ties with independent advisors who are lending to clients collateralized by their investment accounts.

“We’ve grown 20% plus a year, and we work with high net worth individuals, some companies and financial institutions. But the opportunity with Raymond James provided a very safe business,” Fetterolf said.

TriState will remain a separately-chartered bank. Chartwell Investment Partners, the investment management arm of TriState, will complement Raymond James’s Carillon Tower Advisers.

Each share of TriState Capital common stock was converted into $6.00 in cash and 0.25 shares of Raymond James common stock, or $30.62 based on the closing price of Raymond James stock on May 31st. Shares of TriState Capital ceased trading on the NASDAQ.

Fulton Financial this year completed the purchase of Philadelphia’s Prudential Bancorp, in order to expand into a fast-growing metro market, beyond its central Pennsylvania niche, at a price of 1.1 times tangible book value, Zwick estimated.

And last year, Spouting Rock Asset Management inked a joint venture with Bell Asset Management of Australia, acquired a minority stake in Glovista Investments and finalized a majority investment in Penn Capital. Spouting Rock in May appointed a new CEO, Marc Brookman. The Philly-based investment firm led by former Aberdeen co-head Andrew Smith.

Fintech newbie

After serving in the Navy, two Bucks County natives returned to Philadelphia to launch Guild, a self-directed investment platform aimed at the military community. Veterans and former Naval Intelligence officers Sean Bonner and Michael Conallen first met working the same summer job at the Jersey shore decades ago.

Bonner went on to a career on Wall Street until Sept. 11, 2001, when he received a commission as a Navy intelligence officer from 2003 to 2016. An attorney, Conallen spent the bulk of his career in government, serving as chief of staff for Congressional reps and as deputy CEO of the Delaware River Port Authority. He also served as a Navy Intel officer and was deployed to Iraq with Seal Team Four from 2009-2010.

Both wanted to improve financial literacy among the military, and in 2020 they launched Guild as a trading app. Similar to Robin Hood, Guild Portfolio was built as a payment-for-order-flow business model, clearing trades through Alpaca Securities, based in California.

WeBull, Public and Robin Hood “encourage day trading,” said Conallen. “We don’t. We actually pay investors to take education classes on our app,” he said.

The Guild Financial app offers zero-commission trading, fractional share trading, crypto and “crowd-sourced intelligence” portfolios, with leaderboards displaying most popular and best-performing portfolios on the platform. On a daily basis, the app aggregates holdings and publishes the Guild Portfolio, the 30 most popular stocks on its platform. To offer transparency, Guild ranks every user on a daily, weekly and monthly basis.

Abbot Downing shuttered

Wells Fargo’s decision last year to shut down Abbot Downing, its high net worth division for investors with over $20 million, led to several teams of Abbot people leaving for so-called “family offices,” where wealthy families pool their assets and invest together. One group of Abbot Downing employees left for Hirtle Callahan.

From a long-time traditional banker’s standpoint, “this is more of the same,” said Jim Dever, president of Greater Philadelphia operations at Bank of America. “I’ve seen many rounds of consolidation over thirty years in the business. But those behind the latest round of bank deals are doing so in a different, rising rate environment,” he said.