Securities firm fails to pay $160M

Press, 21 May 1982, Page 16

Securities firm fails to pay $160M

NZPA-Reuter New York

Wall Street is counting the cost of financial shockwaves caused by a securities firm's failure to pay SUSI6OM (SNZ2O6.4M) in interest to the Chase Manhattan Bank. Spokesmen for other New York banks said they were checking whether they were involved with the firm, Drysdale Government Securities, whose failure to pay sent bank share prices plunging. Dealers said the size of Drysdale’s interest payments suggested billions of dollars worth of securities were involved. The New York Federal Reserve Bank said it was ready to help commercial banks meet unusual credit demands from dealers. Chase Manhattan, America’s third largest bank, acted as a middleman, borrowing Government notes from several firms and lending them to Drysdale. But because of losses in other transactions, Drysdale could not meet the interest payments. Market sources said sev-

eral major Wall Street brokerage houses were also Drysdale creditors. Chase Manhattan has denied liability for any losses incurred by other securities firms in the transaction, but will pay its own customers all interest due on securities transactions handled by Drysdale. It will also buy out Drysdale’s position in Government notes to cover securities transactions handled by the bank’s institutional banking department.

Earlier, Chase Manhattan had said that Wall Street brokers who supplied the securities it sold to Drysdale would have to seek restitution for losses directly from Drysdale. A spokesman said the Drysdale securities problems would reduce the bank’s income in the second quarter of this year by about SU.SI3SM. .

Banking sources said the affair was disclosed on Monday night at a meeting called by the chairman of Chase Manhattan (Mr Willard

Butcher) and attended by representatives of about 10 dealers.

After the announcement by Chase Manhattan, its shares dropped on the New York stock exchange, closing at $48.75 a share, down $3.25. Shares of other big New York banks’ holding companies were also dragged down. Market sources said the affair might bring into question the adequacy of selfregulation of the 'market in Government bills, notes, and bonds. The sources said that Drysdale was taking on huge transactions with small capitalisation and this might encourage moves for official regulation of the market. Mr Peter Wasserman, president of Drysdale Securities Corporation, said Drysdale Government Securities was “spun off” from his company at the beginning of the year. Drysdale Securities, a member of the New York stock exchange, planned to carry on business as usual.