Strong expected to settle soon
CEO Wessels also says talks with buyers might wrap up ‘quite shortly’
By DAVE UMHOEFER AND KATHLEEN GALLAGHER [email protected]
Thursday, February 12, 2004
Strong Financial Corp.’s new leader said Wednesday he believed the firm would reach a settlement “very, very soon” with financial industry regulators and that talks with potential buyers could conclude “quite shortly.”
Strong chief executive officer Kenneth Wessels said it was likely the firm’s regulatory issues would be settled before a sale agreement was finalized.
The steady loss of assets suffered by the firm late last year has slowed this year as publicity over alleged trading irregularities has waned, Wessels said in an appearance before the Milwaukee County Pension Board.
Strong’s mutual funds had outflows in January of $998 million, compared with outflows of $1.6 billion in December and nearly $2 billion in November, said Drew Wineland, a Strong spokesman.
Wessels assured the Pension Board that the company would not be sold to a buyer that does not plan to guarantee a continued Milwaukee-area presence for Strong. About 1,200 people work at Strong’s Menomonee Falls campus.
“You’ll be comfortable with the type and name and quality of a partner if we chose one and they chose us,” Wessels said. “I do believe there will be a significant presence not only in Wisconsin as Strong moves forward but obviously in the Milwaukee area.”
Any deal would have to ensure that Strong’s investment teams were kept intact for at least two or three years, Wessels said. A buyer would have the option of extending investment team members’ short- term employment contracts or renegotiating them, he said.
Wineland declined to elaborate on the nature of the short-term employment contracts.
Discussions resume
Wessels said the December resignation of Richard S. Strong, his predecessor and the firm’s founder and chief shareholder, “has allowed us . . . to go back to all the regulatory agencies and renew discussions toward what I think will be a satisfactory settlement on behalf of the firm.
“And then Dick Strong personally will settle as that pace progresses,” either in conjunction with, or separate from, the firm’s settlement with regulators, he said.
Talks with regulators have intensified, Wessels said. Brad Maione, a spokesman in the office of New York Attorney General Eliot Spitzer, declined to comment about the status of the negotiations.
Regarding a possible sale of the firm, Wessels said an announcement was expected “in a short number of weeks rather than months.”
He did not rule out Strong continuing on its own if no satisfactory deal with a “strategic partner” could be reached.
Workers stick it out
In an upbeat assessment, Wessels said fewer employees had left the firm than expected while the regulatory cloud has hung over Strong for nearly six months. He praised the integrity and work ethic of Strong’s work force.
“We had some attrition, about 55 or 60 associates, while we usually lose 25 to 30 a year. That’s less than we thought,” Wessels said. “None of our investment teams have left, which surprises me, as a relative outsider to Strong Capital.”
Strong has had nearly $5.5 billion, or more than 10% of its assets, in mutual fund outflows since Sept. 3 when Spitzer implicated the firm in allowing a hedge fund to make improper trades in its funds.
The majority of those outflows, about $4.5 billion, occurred after Spitzer on October 30 publicly targeted Richard Strong for making personal trades in and out of Strong funds. Strong has not detailed the amount of losses of institutional account assets that are not in mutual funds. The firm managed $37 billion as of Jan. 31, Wineland said.
No charges have been filed against Richard Strong or the firm.
County keeps funds
The Pension Board in November rejected a move to pull $121 million in fixed-income investments from Strong. About 9% of the county-employee pension fund is managed by Strong.
The county funds are in a separate account at Strong and are performing well, and the investment team is intact, Brad Blalock of Mercer Investment Co., an adviser to the Pension Board, said Wednesday. He recommended that the county remain with Strong but keep a close eye on action by regulators and the fate of investment teams at the company.
Wessels appeared at the board meeting with F. Jon Baranko, managing director of Strong Financial Corp.’s institutional business.
Baranko said no additional institutional fixed-income clients had pulled out of Strong since his last report to the board in January.
