The Perils of Perot

H. Ross Perot, the crew-cut Texas computer centimillionaire, was full of self-confidence in 1971 when he took control of Wall Street's ailing duPont Glore Forgan Inc., then the nation's third largest brokerage house. By pumping millions of his own into the firm and applying to its operations the data processing techniques that had made him rich, Perot vowed that "I am going to make it as solid as the Prudential."

Last year he took another step toward shoring up the still unprofitable duPont Glore Forgan by partially consolidating it with another big but money-losing Wall Street firm, Walston & Co. Then duPont Glore Forgan took over both firms' back-office operations, stock clearing, data processing and customer accounts, while Walston (formally renamed duPont Walston Inc.) ran the 143-office domestic sales arm. Both firms are now controlled by holding companies in which Perot is the dominant force.

Last week it appeared that this unusual two-tiered arrangement, which Perot's associates Like to brag is an "innovative and very sound structure," was in danger because Walston continues to lose so much money. Strong but unconfirmable rumors were sweeping the securities business that Perot was seeking to merge Walston with another, sounder Wall Street firm. There were reports, too, that Perot's lieutenants had tried to sell some of Walston's branch offices to other Wall Street houses. Still another prevalent report was that some New York Stock Exchange members were urgently meeting to try to produce a plan to help out Walston. In addition, there was some speculation that if Perot did not find a way to turn Walston around, he would pull out of the firm.

To top it off, Perot has been sued by Nella A. Walston, widow of the founder and a major holder of Walston stock. She charged that Perot and his partners seized control of the firm in order to use its capital to cut their multimillion-dollar losses in duPont Glore Forgan. into which they had poured at least $65 million. She asked the court to declare the semimerger null and void and to put both Walston and duPont Glore Forgan into receivership.

Associates of Perot privately concede that Walston is in trouble but argue that it is not so bad off as rumors would have it. Last week the Wall Street Journal reported that the firm's ratio of total indebtedness to net capital was about 6 to 1 in December, compared with only a 3-to-l ratio on Nov. 30. Under New York Stock Exchange rules, member firms may not have more than $15 in debts for every $1 in capital. If the ratio becomes as high as 10 to 1, the N.Y.S.E. prohibits the firm from expanding. Although Walston is still well below the danger point, the doubling of its indebtedness is a disturbing sign.

Since July Walston has lost at least $10.4 million from operations. According to associates, Perot has said that if that firm did not turn a profit in 1973, he would put it through a major reorganization. Two weeks ago, Walston's executive committee met to consider several options. Among them: a merger, a new infusion of capital, reduction of the sales operation or a stepped-up promotion and marketing campaign.

Sales Flop. At the root of Perot's perils is a shaky stock market from which small investors have been fleeing. In the first eleven months of 1973, N.Y.S.E. member firms lost $86 million, v. the $630 million profit they earned during the equivalent period in 1972. Perot tried to lure back what he calls the "little guys" by recruiting an aggressive sales force of punctilious ex-military men like himself, but the campaign flopped. In the past six months, hundreds of Walston salesmen quit or were fired. DuPont Glore Forgan contends that because it, rather than Walston, carries customers' accounts, Walston's clients are in no danger of losing their money. Only Perot, Mrs. Walston and the other owners of Walston stock risk losing a bundle. Perot has been a loser on the stock market before. Since 1970 the price of shares in his Electronic Data Systems has declined from $162 to $21.25, and the value of Perot's holdings has plummeted from well over $1 billion to about $151 million.

Perot shrouded himself in uncustomary silence last week, declaring that he was "only an investor" in Walston. Says a longtime Texas friend who talked with Perot last month: "I felt for the first time ever that Ross had the attitude that he couldn't lick the world. Always before he has given me the impression that he could make anything, but anything, go. He didn't say anything about quitting Wall Street, but I got the impression that he has doubts he can lick'em up there."

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