Morgan guarantees trust.

AuthorMildenberg, David
PositionJim Morgan of Interstate/Johnson Lane - Includes related article - Cover Story

Jim Morgan has turned North Carolina's biggest brokerage around. Who says nice guys finish last?

For further evidence that the fevered markets that characterized the '80s are gone, just check out who's running Interstate/Johnson Lane, the state's biggest stock brokerage: Jim Morgan, who is about as close to Wall Street greedmeister Gordon Gekko as Murphy is to Manteo.

Here's a mild-mannered, '90s kind of guy who made his reputation in the investment business as a brilliant researcher and inspired stock picker rather than as a wheeler-dealer, who's devoted to his family and delights in teaching Sunday school. Clearly, he's a different breed from the macho Street fighters of the past decade.

But this story is more complicated than that of a decent guy succeeding amidst a pack of sharks. Morgan, just like Interstate/Johnson Lane, got caught up in the feeding frenzy of the '80s. While managing a small mutual fund in 1983-84, he traded stocks more aggressively than specified by the fund's prospectus. He also profited by trading a company's stock for his own account while buying and selling it for the fund. After investigations by two sets of regulators over four years, the Securities and Exchange Commission barred him from managing others' money for a year.

By the time he was named president of Interstate/Johnson Lane in September 1990, Morgan's indiscretion was a minor issue next to the brokerage's own enormous troubles. But fixing Interstate/Johnson Lane is, at least partly, Jim Morgan's way of seeking absolution.

The modern history of Interstate began when Parks Dalton joined the 18-employee firm as a broker in 1953. He became president in 1968 and led Interstate's expansion during the boom in the Carolinas in the '70s and early '80s. But after Dalton turned over the CEO title in 1986 to J. Craighill Redwine, Interstate seemed to skid out of control. From 1988 through 1990, it lost more than $20 million.

In hindsight, the reasons for Interstate's slide are easy to pinpoint: The brokerage got too ambitious for its own good. It paid too much to enter Florida and to start a bond-trading operation in Memphis. In October 1988, it paid too much for Georgia-based Johnson Lane Space Smith & Co., which was on the block after being battered by bad real-estate investments. The merged company failed to achieve hoped-for economies of scale; instead, it developed a top-heavy bureaucracy.

Meanwhile, its fledgling investment-banking department was underwriting too many initial public offerings -- Del-Val Financial Corp. and Cato Corp. among the most prominent -- that burned too many investors. Add those internal problems, almost a microcosm of the brokerage industry's '80s excesses, to the board shakedown following the '87 crash and it's no wonder that Interstate/Johnson Lane's pledge -- oft-repeated in its advertising -- to bring Wall Street to Main Street proved all too apt.

"We left our roots, and we thought bigness was greatness," Morgan says. "We had our head handed to us."

As the business sank, things got messy. Morgan was among dozens of brokers, traders and analysts who left. Many of those who stayed raised hell until Redwine resigned on Aug. 29, 1990. A month later, President Elmon Vernier, a former Johnson Lane CEO, followed him out the door.

Dalton, who was removed from the board in 1990, regained control to save the company in which he owned 120,000 shares. In his key move, he hired Jim Morgan, his first and only choice. "I didn't know whether Jim had the management abilities," Dalton says. "But the morale of our firm was so low that I thought we needed someone who could rally the troops."

Naming Morgan president of 1,000-employee Interstate/Johnson Lane was akin to putting a successful high-school coach in charge of a professional team. He had spent most of his career as a stockbroker or money manager, never supervising more than a handful of people. A 1969 graduate of Vanderbilt, he spent three years in the Navy before returning to his hometown of Greenville, S.C., to work as a broker for Hornblower & Weeks Hemphill & Noyes and Bache Halsey Stuart Shields. In 1980 he formed his own investment-advisory company, JHM Management Inc., where he ran afoul of the SEC.

Nor has Morgan, 44, shown the loyalty usually required for advancement into top management. He first joined Interstate in January 1986 as director of investment policy. "Parks told me that Craig |Redwine~ would be running the firm, and I felt great about the company's future," Morgan says.

By June 1989, he no longer felt so positive. He bailed out to join his family's money-management business in Greenville. "I thought it was the final move of my life," he recalls. When he left, Interstate's merger with...

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