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Hutton's Rich History Marred by Hard Times

December 03, 1987|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — There's no telling just how much longer people will listen when E. F. Hutton talks. The 83-year-old firm might not be around that much longer to do any talking.

Hutton, through its recently suspended TV advertising campaign, has become one of the nation's best known stockbrokers and over the years it has weathered many a storm.

In 1906, its San Francisco headquarters were flattened by the earthquake, although the firm was able to get the news through to traders before Wall Street learned of the disaster.

In 1985, the firm was charged with 2,000 counts of wire and mail fraud for using a "check kiting" scheme to fraudulently acquire as much as $250 million in interest free funds each day from 400 banks across the nation. It pleaded guilty and was fined $2 million.

In the recent stock market crash, Hutton lost between $50 million and $60 million.

And during the last decade, observers maintain, Hutton has not stuck exclusively with its most important business--serving retail customers. Instead, it has entered more exotic businesses such as investment banking, mergers and acquisitions, and merchant banking, but it hasn't always prospered in these fields.

"What got them into trouble is that they went too heavily into the capital markets side," said Perrin Long, who covers the stock market firms for Lipper Analytical Services. "The fast limousines, the hurried-up planes, meeting with major principals of large corporations-type business."

Long noted that former Hutton Chairman Robert M. Fomon, who was forced out in May, has not been replaced. Because the board has not promoted President Robert P. Rittereiser, Long said, there may be "disagreement between senior management and the board."

Now E. F. Hutton, to whom people listened with alert and expectant ears, has apparently lost its struggle to remain independent.

Much to the chagrin of many in the advertising business, Hutton has even dropped--at least temporarily--one of advertising's most successful campaigns, one that appeared on TV screens for 14 years.

According to Dave Vadehra, president of Video Story Board, a company that monitors and rates TV advertising, the "When E. F. Hutton talks, people listen" campaign was the most effective in the financial services area. He said that, in terms of advertising dollars spent, Hutton's campaign was twice as effective as Merrill Lynch's, which uses a bull in its campaign.

David Kreinik, who was senior account executive of D'Arcy Masius Benton & Bowles when that firm originated the ads and had the Hutton account, "the recognition of E. F. Hutton as a brokerage went from zero to 99% in five years."

Recently, Hutton substituted a campaign that follows a broker as he gets out of bed, travels to his job and works in the office. Symphonic music plays throughout. At the end, the tagline is: "E. F. Hutton. We listen."

Hutton says the original campaign will most probably be resumed--assuming, of course, that the historic firm continues to maintain an independent identity.

From its beginnings in a single room in New York's financial district, Hutton today operates 383 domestic and 18 foreign branch offices. It employs 18,000, and about 6,500 account executives service about 1.7 million accounts.

In 1901, Edward F. Hutton, son of a prosperous Ohio farmer, became a partner of Harris, Hutton & Co., which traded on what was then known as the Consolidated Stock Exchange. Within a year, he fell in love with the daughter of an influential member of the New York Stock Exchange, who would not allow his daughter to marry a member of the Consolidated Exchange.

Hutton pulled out of his partnership, married Blanche Horton and took a a honeymoon in California. In April, 1904, with an associate, George Ellis Jr., Hutton founded the New York Stock Exchange firm that bore his name.

Hutton opened an office in San Francisco in 1905, the first New York brokerage firm to open an office on the West Coast. A Los Angeles office was opened in 1907.

When those two offices were established, Western Union had no direct facilities over the Rocky Mountains. In order to service his growing roster of West Coast clients, Hutton advanced Western Union $50,000 to establish the first private direct coast-to-coast wire. As a result, a purchase order could be transmitted, executed on the floor of the Big Board and reported in three minutes. Later, in 1925, E. F. Hutton became the first brokerage house to have stock quotation tickers in California.

On April 18, 1906, the San Francisco earthquake wrecked the building housing the E. F. Hutton offices. Despite the damage, all of the records of the brokerage were unscathed. The office manager and his assistants rented a fishing boat and fled to Oakland, which did not suffer such severe damage.

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