Stocks: Market Ho-Hum About New Revenue Limit on Securities

The Federal Reserve board's unanimous vote to lift the revenue limit on securities underwriting for commercial banks has met with a mixed reaction among bank stock investors.

Last week's vote, which increased the amount of investment banking revenues that commercial banks could generate in their section 20 subsidiaries to 25% from 10%, was widely expected by the banking community.

This ruling "has been so well telegraphed that I don't think that stocks are going to be overly moved on the news," said Carole Berger, banking analyst at Salomon Brothers.

Investors' immediate reaction, when the vote was cast last Friday, produced no discernible trend. The S&P bank index rose just .01%. The S&P 500 inched up 0.42%.

On Monday, amid customary seasonal sluggishness, the money-center and superregional banks opened the week listlessly, with S&P Bank index slipping slightly.

Among the banks with big investment banking aspirations, Citicorp shares fell 88 cents to $103.875; Chase Manhattan Corp. shares rose 13 cents to $95.125 ; Bankers Trust New York Corp. fell $1.38 to $88.625; First Union Corp. gained 25 cents to $75.75; and J.P. Morgan & Co. 50 cents to $99.125.

Some say the Fed's move will spur commercial banks to acquire securities firms, and are skeptical about banks spending money to bring in the more volatile and cyclical business.

"I don't consider it an unmitigated blessing. The banks are dividing the same pie rather than expanding the marketplace. There is going to be pressure on margins, and this ruling is not going to alleviate it," said Michael Metz, investment strategist at Oppenheimer & Co.

The impact of falling barriers between investment banking and commercial banking already have lifted the prices of brokerages like Lehman Brothers and investment banking boutiques like Alex. Brown & Sons, leaving few investment opportunities in the stock of brokerages.

"This ruling doesn't come as any surprise; it's already been factored into the marketplace. The trouble is that it's hard to find any bargains," Mr. Metz said.

"I don't think that this will make acquisition activity more prominent than it has been," said Joan Goodman, a bank analyst with Pershing/DLJ. "There are only a set amount of banks that want to be in it."

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