Noonan Closes FX Brokerage Operation In L.A. Lack Of Trading Cited, FX Brokers Feel Pinch

Noonan Astley & Pearce Inc. shut down its four-man foreign exchange brokerage operation in Los Angeles recently, sources there say. Noonan has chosen to consolidate its foreign exchange brokerage operation in New York instead, but will keep its money market operation in L.A. open.

"There wasn't much business going on in Los Angeles in foreign exchange," says Peter Rotundo, an executive vice president and head of foreign exchange at Noonan, who confirmed the report. In addition, those banks that were trading preferred to deal directly with Noonan's New York office rather than its satellite operation, he says. "In [this] day and age, no matter what center it may be, I think it may be more wise and beneficial to the banks to talk to the main center," he notes.

Of the four brokers affected, only Peter Endow, manager of the defunct unit, has been offered a position in Noonan's New York office. "Peter Endow will be joining us in New York," says Rotundo who adds, "he's going to be one of the managers of the spot yen desk." Noonan's spot yen desk in New York consists of 18 brokers, Rotundo notes.

Noonan's decision appears to reflect the continued contraction of the foreign exchange industry and broker's increasingly difficult battle to pump profits. As the market recedes, activity tends to migrate toward the most active centers, London, Tokyo and New York, and extraneous branch offices are shut down. The scenario holds true for banks and brokers alike and despite expectations that L.A. might emerge as a major foreign exchange trading center, its growth now appears stunted as more and more banks and brokers reassess their operations there.

Noonan's departure marks the end of its long, frustrating attempt to establish a foreign exchange brokerage operation on the West Coast. In 1973, Noonan opened an office in San Francisco, which at its peak employed 12 brokers. Later that year, Noonan opened an office in Los Angeles. That attempt was unsuccessful, sources at the money broker say. The L.A. office was shut down within one year. But, as the San Francisco foreign exchange market shrank and a number of foreign banks started opening offices in Los Angeles, Noonan reopened its offices there, closing its San Francisco operation shortly thereafter.

Though Noonan was able to maintain its operation there during the 1980's, the push for profits in this increasingly competitive environment forced the broker to rethink its commitment. With foreign exchange commissions shrinking and costs rising, FX brokers have been scrambling to cut costs.

"The whole thing is a horror story," one former foreign exchange broker says of the current state of the business. "Basically, what you have is fixed expenses and variable income, which is not the way you want to run a business," he says. Brokers, which typically offer banks volume discounts on commission fees, have watched business slide and commission fees dwindle as banks fight to keep their own costs down.

In addition, foreign exchange transaction systems have taken a sizable bite out of the brokers' pie. While most foreign exchange officials maintain that there will always be a place for the brokers, the question now seems to be just how big a place it will be. "Unless you're going to pick a niche and can offer some value added," the future looks bleak, the former broker says.

Noonan has been instituting changes that it hopes will allow it to ride out the storm. It recently announced plans to establish a link with U.K.-based money broker R.P. Martin which will provide customers with greater access to foreign exchange prices (FX Week, June 21).

In addition, the broker recently introduced NoonanLine, a pay-per-call telephone service that provides callers with live foreign exchange quotes. As well as a potential revenue earner, the new service is intended to identify possible users of other Noonan market data services (FX Week, April 5).