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April 1, 1998

The Fall of Peregrine: A Wall Street War Story How the Indonesian Currency Crisis Toppled a Giant

By Maureen Nevin Duffy

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Late last summer, analysts were high on Peregrine Investment Holdings, a ten-year-old investment bank that grew from a specialized company to one of Asia's top stock underwriters and equity brokerages.

Anne Gardini, head of research at ABN AMRO Hoare Govett Asia in Hong Kong, noted that the firm was trading at 9.3 times forecasted 1997 earnings.

The Wall Street Journal wrote: "The surge in Hong Kong and Chinese stocks has some analysts and investors figuring that the Chinese year of the ox may be the year of the bull market for Peregrine Investments Holdings."

Earlier in the summer, Mark G. Holowesko, president and chief investment officer of the venerable Templeton Global Equity Group, topped up his holdings in Peregrine stock, prompted by the firm's "fantastic job" of building China-related business. Then the bottom fell out.

The Real Story

On a cold night in early February, Gary Greenberg, the defunct Peregrine's former chief investment officer, shared with Traders Magazine the real story behind Peregrine's collapse in a telephone interview from his home in Hong Kong:

"What happened to Peregrine? Peregrine blew up because it was not able to manage the transition from the old world of broking to the new world, from the club system to the corporate system of financial services," Greenberg said, between coaching his son in Super Mario Brothers (the popular children's video game).

Peregrine apparently had the dubious distinction of being entrenched in the big stakes game played by the more entrenched big boys of brokerage without really "belonging," Greenberg said.

"Peregrine was only able to compete within the new, much tougher environment by taking risks that others were hesitant to take. That's one aspect," he added.

One U.S.-based trader familiar with Peregrine's business agreed. Steven Klein, director of global equity trading at American Century in Kansas City, said Peregrine had to be a risk taker to compete with other major Asian outfits.

"As it ratcheted up successes in those last 18 months or two years that they were really flying, it became very public, very prominent," Klein said. "It was a heavily competitive global environment for a firm the size of Peregrine."

Klein described American Century's relationship with Peregrine as "lengthy and strong," dating back to Peregrine's infancy. American Century executed equity business with Peregrine's brokerage arm in Asia.

Initially, the fund dealt with them directly through Peregrine's traders in New York, and then, after American Century opened its Singapore office, it dealt through Peregrine in Hong Kong.

Klein says Peregrine had about half-a-dozen sales traders in the Hong Kong office. "It was a significant operation, one of the very largest brokers in that region," he said.

As negative rumors started to swirl last fall around many firms based in Asia, Klein was hopeful that Peregrine would escape unscathed.

"We had been dealing with them within a week or two of when the disaster befell them," he said. "Only the week before, a persistent story began to develop that had credibility."