Deregulation of banks won't harm brokerages

SUNDAY OUTLOOK

September 25, 1994|By David Conn

On Monday Federal Reserve Chairman Alan Greenspan, pointing to the amount of securities activities conducted by banks, called for Congress to lift the remaining restrictions that prevent banks from moving more deeply into selling and underwriting securities.

It wasn't the first time Mr. Greenspan has criticized the gradually eroding Glass-Steagall Act, which has kept banks out of some aspects of the insurance and securities businesses. But with an increasing blurring of the lines between the three industries, some of the smaller brokerage firms likely will face even more challenges from their bank and insurance competitors.

What does the future hold for regional brokerage firms?

Raymond A. Mason

Chairman, Legg Mason Inc.

I think the banks will be competitors, but no more so than anyone else is. The position of the Fed is no different than it's been for the last two or three years.

All bank regulators have always been incredibly sympathetic to the cause of the banks, and this is no different. They just won't allow anybody to ever encroach on their land. But we've seen this coming for some time. It's very hard to operate in a business as complex and compliance-oriented as securities markets are without very well-trained people, and their people aren't trained to do this.

I've heard for 30 years that regionals won't make it, and I've watched the nationals go away, and we're still here. I think we'll be fine.

If you look out 10 years we'll be larger. We're much larger than I ever dreamed we'd end up being in terms of area, and that'll probably continue.

As the national firms become more international, the regional firms tend to become more national. We go from Houston to Boston, and 10 years ago I never would have believed that.

George M. Ferris Jr.

Chairman, Ferris, Baker Watts Inc.

Let me say that for all intents and purposes, Glass-Steagall is dead, in the sense that more and more of the major banks do have the ability to conduct full securities activities, including the underwriting of equities, but with limits to the amounts that they can do.

I think that this will undoubtedly lead to a greater consolidation in the financial services industry. Banks have a great deal more capital than securities firms. Banks may find that it is more expedient and easier to buy securities firms than to grow their own securities divisions.

Now, bankers have a different mindset than investment bankers, and some argue that that therefore will not lead to a consolidation. But I think it simply says that banks will find it easier to become significant players in the securities industry by acquiring securities firms and letting them do their own thing, rather than trying to grow securities divisions.

Regional firms -- many are controlled by a very few individuals, and as some of those individuals want to make their estates more liquid, they might consider selling out to firms at very sizable premiums over book value. Maybe we'll get back to the days where successful securities firms are sold at two or three times book value.

At Ferris Baker Watts I know of no individual on our board of directors that is not having a great deal of fun just the way it is. So we're not a candidate for acquisition.

Perrin H. Long Jr.

Former director of equity research, First of Michigan Corp.

If you took the regional firms -- Alex. Brown and Legg Mason to name two -- they will always tell you that in smaller towns the local banks have always been a major source of competition. What we're talking about here is for the individual investors' dollars that they invest. Banks have been there on passbook savings, CDs, you name it.

Banks are going to become greater competitors to the industry. Mr. Greenspan is correct -- any bank could get into the brokerage industry today if they wanted to.

By the end of this decade, on new money flowing into mutual funds, the banks will account for 50 percent of it.

I think regional brokerages will all still stay in business. No brokerage firm goes out of business unless there's been fraud. It'll become more competitive. Most banks are selling annuities these days. Banks could probably get into the travel busines in some states if they want. Some banks have discount brokerage units. But the regional firms will survive.

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