In recent days, as some of Wall Street's most storied institutions teetered, the mood at Indiana's largest and oldest investment firm was almost serene.
City Securities Corp. managers tracked news tickers and consulted CEO Mike Bosway, who was on vacation in Ireland, via his BlackBerry.
But their biggest concern wasn't the financial underpinnings of their own company. It was tumbling stock prices, which depressed the value of the portfolios of their 15,000 clients.
Bosway saw no need to rush home for a simple reason: Privately held City Securities never exposed itself to the high-risk financial terrain that claimed Lehman Brothers and pushed Merrill Lynch into the arms of Bank of America.
For City Securities, the crisis perhaps offers a chance to hire a handful of highquality New York brokers who want to relocate. The firm also may be able to capture some former Indiana clients of the Wall Street firms.
But beyond that, City Securities simply aims to keep up the conservative practices that have served it well for 84 years-practices the giants of financial services forgot.
"It's always tempting to leverage yourself up. It looks so easy. But it can be very expensive in the long run," said Jim Merten, City Securities' vice chairman. "Everybody was making too much money to ask, 'If the music stops, can these loans be paid back?' We've pretty much found out they can't."
Both Lehman and Merrill Lynch ratcheted up their leverage while piling into risky real estate investments, leaving them with inadequate capital and toxic assets.
Lehman on Sept. 14 announced it was filing the largest U.S. bankruptcy ever; the same day, Merrill announced it would be acquired by Charlotte, N.C.-based Bank of America for $50 billion. Other global investment firms were racing to try to shore up their capital to reassure rattled shareholders.
Regional financial services companies like City Securities felt the ripples. But they weren't sweating about insolvency like the big boys, because they aren't in the same business.
They don't take the kind of enormous arbitrage risks found on Wall Street. That's always limited their returns, but the strategy served them well during the crisis.
"Their market ultimately isn't the same as the larger ones," said William Rieber, a Butler University economics professor.
City Securities' business model is more straightforward. The firm has six offices and 175 employees, about 100 of whom work in its brokerage operation. But the company is still best known as a powerhouse in public finance.
City Securities handles the municipal bonds for most every school expansion and road project in the state. And it does the same for a lion's share of utility and hospital construction.
In recent years, Bosway has led efforts to diversify his company. City Securities is now active in insurance and in real estate finance, and its private client group manages wealthy people's money.
It also has an increasing presence in corporate finance, helping growing firms raise money and engineer mergers and acquisitions. Last year, for example, it advised Kimball International Inc. in its $49.5 million acquisition of Reptron Electronics.
Founder J. Dwight Peterson's heirs remain City Securities' majority owners, although its managers and employees now hold minority stakes. In 2006, City Securities restructured itself under a holding company, City Financial Corp., which at the time listed assets of $29.2 million and liabilities of just $5.7 million.
City Securities is something of a vanishing breed. Many of the smaller, regional U.S. investment firms were gobbled up by banks in the 1990s, after regulators scaled back restrictions on such deals. In 1994, for instance, Cleveland-based National City Corp. acquired Raffensperger Hughes & Co., the city's other major locally based brokerage. It now operates as NatCity Investments.
The turmoil among Wall Street firms should bode well for City Securities, since some of their long-standing customers now may be up for grabs, said Joe DeHaven, CEO of the Indiana Bankers Association.
"People deal with people. The institution that has the best people and good products is going to do very well," DeHaven said. "People are going to go where they can talk to somebody who can make decisions."
But veteran investment banker Joe Broeker, co-managing director of Indianapolisbased Periculum Capital Co., is skeptical.
Indiana long has been a financial services backwater. Its biggest players, like City Securities and Periculum, have the strength and manpower to raise money or engineer acquisitions for companies with $50 million in annual revenue or less.
The state lost its capacity to pull off larger deals long ago, along with the headquarters of all its biggest banks. Ultimately, Broeker said, New York will continue to be home for mega-deals.
"I don't see much effect on the local firms from the investment banking side from the troubles on Wall Street," he said. "The bigbracket firms were so big, very few Indianabased entities would benefit from the fallout. It's such a scale thing."
Merten isn't expecting explosive growth, either. But he does believe the company's conservative philosophy will play well with potential brokerage customers unnerved by the recent upheaval.
"A critical eye will be needed, and more advice before people jump into investments," Merten said. "At least for the next six or eight years. Then people will forget, I guess."