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New setback for Shaw?
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February 19, 1999: 2:43 p.m. ET
Once high-flying, securities firm is forced to sell another unit
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NEW YORK (CNNfn) - D.E. Shaw & Co.'s plan to sell its online-brokerage technology business is only the latest setback for the once high-flying investment firm.
The sale to Merrill Lynch & Co. for an estimated $30 million is expected to help Merrill, the nation's biggest brokerage, in its bid to jump into online trading.
It won't affect Shaw's Juno online services unit, which supplies Internet access and free e-mail to more than 6.5 million members.
But the sale, recent layoffs and other asset sales will leave Shaw a much different firm than the one the business press was calling "cutting edge" and an "intriguing and mysterious force" on Wall Street just a few short years ago.
The New York-based firm specializes in using esoteric computer programs to spot potentially lucrative investments, build portfolios and manage risk.
Its founder and chairman, David E. Shaw, is a former Columbia University computer scientist who earned a fortune from those programs and whose love of technology is near-legend on Wall Street. After leaving Columbia to join Morgan Stanley in 1986, he founded D.E. Shaw two years later. In 1994 he was named to President Clinton's science and technology advisory committee.
The firm's problems began last year when it was blamed for $372 million in trading losses at BankAmerica, a major customer since 1997. The bank stunned investors when it disclosed the losses in October and later took control of Shaw's troubled $20 billion bond portfolio.
Shaw wasn't the only firm that bet wrong on risky investments during the turmoil in world financial markets last year. Long-Term Capital Management got a $3.6 billion bailout from its major lenders on Wall Street in September after the hedge fund's aggressive bets on arcane investments produced huge losses.
Analysts said the business being sold wasn't a core operation for Shaw but reflected the troubles that began last fall.
"I'm not sure this is going to change what's left of the core of D.E. Shaw," said Dean Eberling at the investment house Putnam, Lovell, de Guardiola and Thornton. He said the firm doesn't get much attention "unless things are really bad."
Officials at Shaw weren't available for comment.
After BankAmerica cut most of its ties to Shaw, the firm slashed a quarter of its work force, closed a California office and sold a securities trading unit. Its FarSight Financial Services unit, a small online brokerage, remains up for sale.
The closely held firm now is focusing on trading stocks for its own account and other financial houses, according to reports, even as technology has led it into other areas.
In 1994, it bought 36 percent of Molecular Simulations Inc., a maker of software to help chemists design new drugs, and later earned a handsome return when the firm was bought out in 1988, D.E. Shaw says on its Web site.
The site noted that Juno remains the firm's biggest technology venture investment to date.
-- by staff writer Steven Radwell 
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D.E. Shaw
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