One of the nation's top accounting firms is getting into the investment banking business, hoping to boost its profits from consolidation in a number of industries, including banking.
KPMG Peat Marwick, frustrated by accounting regulations that prohibit it from advising clients, has established a "strategic relationship" with KPMG BayMark Capital, an independent broker-dealer firm founded this year expressly for that purpose.
BayMark will work closely with executives in Peat Marwick's financial services practice.
"The idea is to have a broker-dealer investment banker working alongside Peat Marwick," said David Maughan, BayMark's chief executive.
"This is the only place that will combine the usual investment banking skills with the kinds of skills my other partner brings to the table," he added. "I have the ability to buy resource from Peat and provide customers with one-stop financial services shopping."
Accounting firms are prohibited from moving beyond general auditing to soliciting merger deals and advisory work.
As a result, accountants said they have felt frustrated after laboriously helping put deals together, only to watch investment bankers move in at the end to close the deal and collect the big fees.
Under the new arrangement, BayMark will solicit the deals, and subcontract the accounting work back to Peat Marwick.
Investment bankers asserted that the relationship, while it may make sense on paper, is fraught with peril.
They said past forays by accounting firms into other areas have mostly been unsuccessful. For example, Peat Marwick was forced to sell its executive search firm a few years ago, and its own consulting practice has never been all that successful.
"It is difficult to get people who think of you as their auditors to think of you as their investment banker," said an investment banker at a brokerage firm that services midsize financial institutions - the kind BayMark hopes to attract.
Although there is a large volume of deals in the banking industry, fees are declining, added this investment banker, who requested anonymity.
"The business is very, very competitive, and every time there is an assignment you come up against Merrill Lynch, Keefe, Bruyette & Woods, and Sandler O'Neill," he said.
But Michael Turillo, who as partner-in-charge of Peat Marwick's financial services practice will work closely with BayMark, said clients were interested in having the company do advisory work.
He added that BayMark's fees would be especially attractive because it will offer bundled services to clients, keeping costs down.
Mr. Maughan said that bank clients were ecstatic over the new services. He said that because its customers are also Peat Marwick accounting clients, BayMark will be especially sensitive to their concerns.
The 44-year old Mr. Maughan began his 20-year career at Morgan Stanley & Co. He also has worked at two now defunct firms - Kidder Peabody & Co., where he was in charge of the financial institutions practice, and Drexel Burnham Lambert.
At BayMark, he directs a staff of nine that includes five other investment bankers. He hopes double the latter number over the next few years.
The company will not sell securities to the public, but does plan to offer private placements for large investors.
