Suddenly A Scramble To Buy Top IPO Firms

The stampede is on.

After years of patiently planning and slowly building their securities businesses, banks are suddenly whipping out their checkbooks to buy some of the premier equity underwriting firms.

Late Thursday, as word spread that NationsBank Corp. is in talks to buy Montgomery Securities for approximately $1 billion, the strategy of buying equity capabilities seemed to have overtaken the build-it-yourself approach once and for all.

The deal, if confirmed, would mark the fourth time in as many months that a big bank had picked a partner from the top 20 firms in the lucrative business of underwriting stocks.

"Banks are less interested in building than they used to be," said Anthony Davis, bank analyst with Dillon Read & Co., New York. But he worried that the herd mentality might be at play in the rush to buy equity firms: "Banks tend to do what the other guy is doing."

Speculation about who will buy a firm next quickly turned to a pair of banks that have publicly declared their intentions to build equity powers: Chase Manhattan Corp. and First Union Corp.

Chase was the most talked about, and observers said Donaldson, Lufkin & Jenrette would be a likely candidate. The firm raised $2.5 billion through 29 initial public offerings last year, placing it fifth by volume, according to Securities Data Co.

"Every time they lose a deal to BankAmerica, NationsBank, or Bankers Trust, they'll keep asking whether it's the absence of equity" capabilities, said analyst Larry Cohn of Ryan, Beck & Co.

Indeed, Chase vice chairman William B. Harrison has said that while the bank wants to build its own equity business, it is watching closely to see what its rivals do.

"It really depends on who buys and how much that changes the overall competitive vision," Mr. Harrison told American Banker in a January interview.

That was just weeks before Bankers Trust New York Corp. tipped the first domino with its plan to acquire Alex. Brown & Sons, a Baltimore brokerage that was one of the leaders of the IPO business last year. The move followed the Federal Reserve's decision late last year to allow bank holding companies to derive a larger share of revenues from their securities units.

Since then, Swiss Bank Corp. has announced a deal for Dillon Read & Co. and BankAmerica Corp. has unveiled plans to buy Robertson Stephens & Co. In addition, Canadian Imperial Bank of Commerce is said to be close to a deal for Oppenheimer & Co.

It's not surprising that banks are eager to get into a business that boasts hefty underwriting fees of 5% to 7%. But they are keeping their plans close to the vest.

Officials at Chase declined Friday to discuss whether they are contemplating a purchase.

A spokesman for First Union said the company hasn't ruled it out, but isn't driven by peer pressure.

"Our strategy is driven by internal goals and objectives," said the spokesman, David Scanzoni. "Certainly the move of a competitor does not drive our strategy."

But observers said the advantages of buying rather than building may prove irresistible.

"Buying gives you an instant name brand and instant expertise," said Restor Johnson, syndicate manager at Dain Bosworth, Minneapolis.

Teaming up with an established partner can also boost banks' credibility, said Paul Grangaard, director of corporate finance at Piper Jaffray, Minneapolis. "No one wants to be anybody's first deal and buying takes away that risk."

Instead of slowly building up staff, business and client relationships over time, a bank can "fast forward seven years and come in at that business seven years down the line," said Lee Pomeroy, a financial executive recruiter at Egon Zehnder International, New York.

But others saw a clear downside. Analyst Catherine Murray of J.P. Morgan & Co. said NationsBank, based in Charlotte, N.C., may find it difficult to assimilate an investment bank that is in San Francisco.

"I wish they wouldn't do it," said Ms. Murray said. "Its going to be difficult for a bank to build 2,000 miles away, and there are cultural issues."

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