Time was when corporations wanted a loan, they went to a bank. When they wanted to issue securities, they went to a securities firm. And when they wanted help with a merger, they went to an advisory boutique.
Not anymore.
While Congress continues to debate the future of Glass-Steagall, commercial banks and investment banks have been breaking into each other's businesses with startling force. Commercial banks now occupy five berths among the top 15 lead-underwriters of junk bonds. And Wall Street firms routinely arrange loans for high-profile borrowers like Allied Waste Industries and Kohlberg Kravis Roberts.
Since March, three U.S. commercial banks - Bankers Trust New York Corp., BankAmerica Corp., and NationsBank Corp. - have announced plans to snap up securities firms. By buying Alex. Brown & Sons, Robertson Stephens & Co., and Montgomery Securities, these banks believe they can quickly add equities to their corporate finance menus.
The deals are only the most visible manifestation of an industry convergence that has been going on in earnest since 1994. Commercial banks that have not bought securities firms outright have hired a slew of Wall Street professionals to build their underwriting and advisory businesses.
And investment banks have been just as hungry for commercial banking talent to staff their loan syndications shop.
The result: a landscape bristling with "one-stop-shops" for corporate finance - outfits that offer everything from merger advice to loans to equity.
As recently as a year ago, the concept was novel enough that firms would advertise their multi-layered roles in high-profile one-stop shops. Today, the ability to offer "integrated finance" is a given. Indeed, most of the top 15 lenders have at least some securities underwriting capabilities.
That has sent bankers scrambling for new ways to differentiate themselves from the pact. The arrow most firms want in their quiver now is not a new type of financing, but the ability to generate ideas - suggestions on which companies' clients should buy and how to structure deals.
"The best example of where one-stop shopping works is to engineer it off of an M&A transaction," said Edward Carter, managing director and head of investment banking at Deutsche Morgan Grenfell. "You bring the idea to the client, offer financing for the deal and also permanent financing."
Ideas are an especially valued currency among leveraged buyout firms - one of the leading testing grounds for the one-stop shopping strategies of banks and Wall Street firms.(see story page 22).
"The best argument financial institutions can make for one-stop shopping is bringing a deal on an exclusive basis," said Jeff Hughes, a principal at Cypress Group and a veteran of Lehman Brothers. "That's something of value. It's the lifeblood for us, and that's what you really pay for."
The hunger for ideas comes amid a flourishing mergers and acquisition scene. Some $366 billion worth of M&A transactions were announced during the first half of this year, according to Securities Data Co. That puts the market on track to break last year's record $649 billion in deals.
For commercial banks - which have largely built their one-stop shopping strategies off of their syndicated lending shops - the message is clear: they must better integrate mergers and acquisitions advisory into the mix. That is no easy task, considering Wall Street's virtual stranglehold on that market.
Goldman, Sachs & Co., for example, finished the first half of the year with a whopping 31% share of the M&A advisory business, followed by Merrill Lynch & Co., with 27%. Meanwhile, the most active commercial bank in the business, J.P. Morgan & Co., ended the period with a 5.6% share.
Other ways for firms to differentiate themselves, bankers say, is to display industry expertise. Once the province of investment boutiques like media's Allen & Co. and banking's Keefe Bruyette & Woods, industry specialization is becoming a buzzword among commercial and investment bankers alike.
Healthcare and telecommunications are particularly hot sectors right now, with almost every major player offering groups dedicated to their financing needs. (see stories page 23 and 24).
While bankers continue to pour resources into their one-stop shopping efforts, observers caution that the concept may never fully live up to its name.
"There are going to be a lot of mistakes made as we go forward," said Perrin Long, a veteran securities industry analyst in Darien, Ct. "I really doubt that many corporations will use one provider of financial services only. It just won't work that way."
Indeed, Mr. Long said he would not be surprised if 10 years from now, BankAmerica, Bankers Trust, NationsBank and others begin to spin-off pieces of their securities operations to the public.
Even practitioners of one-stop shopping agree that the trend is generating more hype than deals. "There's a lot more lip service being given to it than is actually happening," Mr. Carter said. Still, he believes the term still has some legs and has not yet entered the realm of meaningless buzz.
"It's not as bad as 'global,"' he said.
