Lone wolves do well alone Mergers creating financial megastores sometimes disappoint

The case of Alex. Brown

Ferris, Baker Watts talks of staying single, as do Legg and Price


November 29, 1998|By Jay Hancock | Jay Hancock,SUN STAFF

Another year. Another rush of banks, brokers and insurers merging into "financial supermarkets."

And another round of questions about T. Rowe Price Associates Inc., Legg Mason Inc. and Ferris, Baker Watts Inc.: How long can Baltimore's financial boutiques stay independent in a superstore world?

The companies continue their Greta Garbo impressions: "I want to be alone," or words to that effect.

But the trend toward "one-stop" financial shopping and global economies of scale is so powerful that investors continue to bet on buyouts of both regional and national financial firms.

"It's not something that's going to stop happening," said Greyson Williams, merger analyst with SNL Securities LC in Charlottesville, Va. "One of the big things you hear about is the cross-selling opportunities" involving insurance, credit cards, brokerage services and so forth. "As long as that's going to be there, you're going to continue to see this."

Even so, new evidence is accumulating showing that financial megastores aren't all they're hyped up to be. Many financial mergers have gone badly or failed to deliver on their promises, and the emergence of the Internet as a financial bazaar challenges the very concept of selling mortgages, mutual funds and car policies under one nameplate.

Perhaps, said several independent financial analysts and management consultants, regional powerhouses such as Price, Legg and Ferris don't have to link up with global partners after all.

"They are viable," said Michael Lipper, president of Lipper Analytical Services in New York. "There is no evidence that size necessarily will dictate an advantage."

Speculation about the companies awakened again last week after Deutsche Bank AG and Bankers Trust Corp. announced that they would execute the latest blockbuster financial marriage. Stock in both Legg and Price rose after the Deutsche merger was announced, although an increase in the overall market played a part, too. Ferris is privately held.

At the same time, the recent sales of Baltimore natives Alex. Brown Inc. and USF&G Corp. to bigger rivals have renewed fears for the city's remaining financial plums. The St. Paul Cos. bought insurer USF&G this year, and investment bank Brown merged into Bankers Trust last year.

Mergers almost never are good for communities harboring buyout subjects, as layoffs and transfers of authority take their toll. Ferris has about 300 Maryland employees; Price, 2,800; Legg, 1,900.

Last week, executives at the three companies repeated their oft-uttered desires to stay single.

"I have been very clear all along that we did not want to be acquired," said Raymond A. "Chip" Mason, Legg Mason's chairman and chief executive. Legg is a stock brokerage, asset manager and investment bank.

"Let's put it this way; we are not seeking a partner," said Louis Akers, chief executive of Ferris, a brokerage and investment bank.

"We have said all along that we want to be independent period," said George Roche, chairman and president of T. Rowe Price, large and well-known mutual fund house.

But that's what A. B. "Buzzy" Krongard, former head of Alex. Brown, said repeatedly before he sold the firm to Bankers Trust. Brown's reversal has caused some in the Baltimore business community to privately discount similar statements from Mason, Roche and Akers.

Several factors, however, make the Brown merger different, analysts said.

Brown was driven into Bankers Trust's arms by the requirements of the "wholesale" side of the financial business -- loan syndication, stock underwriting and bond issuance, where bulk is key.

Ferris, Price and Legg are much more focused on "retail" -- selling mutual funds, stocks and other products to individuals. In financial retailing, size is important but relationships with customers are paramount. And relationships between financiers and consumers are a swift-moving target these days.

Many of the financial mergers in recent years have been driven by the erosion of regulatory barriers between banking, insurance and stock selling. Executives figured that consumers would want to buy a half-dozen financial products under one roof just as they now shop at Safeway or Giant instead of visiting a separate bakery, butcher, greengrocer and drug store. As regulations eased, they started assembling the mega- stores.

The boldest step was taken two months ago by Travelers Group Inc. and Citicorp, which linked to form Citigroup, a $751 billion behemoth of insurance, banking, investment banking, credit cards, mortgages, stocks, bonds and more.

Many analysts, however, are questioning whether the strategy makes sense.

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