NEW YORK — Ralph D. DeNunzio announced Thursday that he will resign as chief executive of the major investment firm Kidder, Peabody & Co. and that the second-ranking official will leave the company altogether in a shake-up that marks the latest casualty of Wall Street's insider trading scandal.
DeNunzio, who will stay on as chairman to oversee the management transition, will be replaced as chief executive by Silas S. Cathcart, longtime chairman of Illinois Tool Works until his retirement last year and a director for 15 years of Kidder's parent company, General Electric. Cathcart, 61, spent his entire career at the Illinois tool company and has no experience in the securities industry.
The senior-level changes were ordered by GE, which bought its 80% interest in Kidder last year for $600 million. They represent the culmination of an intensive three-month-long review of Kidder's operations, itself inspired by the arrest and indictment in February of two top Kidder stock traders and by government allegations that the firm itself made millions of dollars in profits from trading on illegal inside information supplied in part by Kidder's former mergers and acquisitions star, Martin A. Siegel.
Expected on Wall Street
These highly publicized events have deeply embarrassed Kidder, one of the nation's oldest and most prestigious brokerage firms. For weeks, Wall Street "has been expecting this shoe to fall," according to one high-ranking executive of a competing brokerage.
Added Mark Altman, an analyst who follows General Electric for the Paine Webber brokerage firm: "This certainly came as no surprise. It was clear to us on Wall Street that GE wanted to start fresh."
The timing of the announcement, however, was ironic, given a decision by federal prosecutors only a day earlier to dismiss their controversial insider trading charges against the two Kidder traders--Richard B. Wigton and Timothy L. Tabor--and a third man, Robert M. Freeman, who heads arbitrage trading for the investment house Goldman, Sachs & Co..
The government, however, indicated that it hopes to be able to seek a new and expanded indictment of the three at a later date.
Although some Wall Street analysts said Thursday that they had long expected GE to replace Kidder's top executives with its own--just as it did at its National Broadcasting Co. unit last year--sources at GE said no top-level management changes were planned until the insider trading scandal touched Kidder.
As soon as Wigton and Tabor were accused by Siegel--who himself has pleaded guilty to insider trading charges--of dealing in inside information and indicted, the GE sources said, GE sent in a team to survey the damage. What they found, one of the sources said, was that Kidder's "procedures and controls did not measure up to the standards we thought were necessary."
To strengthen the controls, GE decided to reconstitute the Kidder board of directors, with a majority of seats to be held by GE financial services employees, and to change the brokerage's management team.
DeNunzio, whose long and celebrated career on Wall Street includes tenure as chairman of the New York Stock Exchange, will officially step down as chief executive--a post he has held for 20 years--on June 1.
The same day, John T. Roche, Kidder's chief operating officer, will resign from the brokerage, as will Robert Krantz, Kidder's secretary and general counsel.
Succeeding Roche will be Max C. Chapman Jr., currently president of Kidder's broker-dealer unit. Chapman thus becomes Kidder's ranking securities specialist.
Some industry analysts were critical of GE's choice of a securities industry outsider to replace DeNunzio.
However, Bruce Bunch, a GE spokesman, defended the company's decision, saying that Cathcart was selected for his leadership abilities, management skills and contacts with other top corporate executives. Cathcart, who has been a GE director for 15 years, also serves on the boards of Bethlehem Steel and Baxter Travenol.
Clarke Walser, a Chicago Corp. securities analyst who follows Illinois Tool Works, said Cathcart is regarded as a "creative strategist" and long-range thinker.