Banking analysts are arguing that some key distinctions exist between what U.S. banks are doing in the investment banking arena and Barclays PLC's ill-fated investment in BZW.
Barclays is selling the European equity and merger advisory portions of its investment banking business to Credit Suisse First Boston for $170 million-less than book value.
The business, bought with high hopes in 1984, proved to be an albatross.
The company said BZW accounted for 32% of Barclays' "weighted risk" assets, but only 8.6% of its profits. Though 1996 pretax profits at the commercial bank rose 13%, to about $4 billion, at BZW they fell 29.4%, to $346.8 million.
As a percentage of Barclays' salary costs, the investment banking numbers look even worse. BZW's profit-to-cost ratio dropped from 24% in 1993, to 9% in 1996.
But analysts doubt BankAmerica Corp., NationsBank Corp., and other Americans jumping into the business will face anything similar.
U.S. banks ranging from Citicorp to Security Pacific Corp. have overreached in investment banking and suffered the consequences. But lately, said Raphael Soifer, an analyst at Brown Brothers, Harriman & Co., "investment banks have been usually much smaller than the companies buying them."
The difference in size, Mr. Soiffer said, means acquirers will be better able to absorb the high costs of investment banking.
"The deals you see now are more geared to generating retail banking business, filling out product lines, more than becoming a global investment bank," said John Duffy, director of corporate finance at Keefe, Bruyette & Woods.
Back when Barclays acquired de Zoete & Bevan and Wedd Durlacher & Co. to form BZW, both firms were already major securities firms and had a greater impact on Barclays' bottom line than such firms as Alex. Brown & Sons or Montgomery Securities are expected to bring to their new commercial banking owners.
Analysts note that Alex. Brown is small compared to its new owner, Bankers Trust New York Corp. The investment bank had a market value of $2.7 billion in March, just before it agreed to sell, while Bankers Trust had a market value of $110 billion.
And NationsBank is so much bigger than Montgomery Securities, which it acquired last month, that officials at the Charlotte, N.C., banking giant say they don't expect the acquisition to affect earnings materially.
Barclays disclosed that "total staff costs" rose 19% at BZW in 1996, to $1.3 billion, and said such costs rose "more steeply" in the second half of the year. "The rise in costs reflected the continued and substantial investment in people and systems," the company said in its annual report.
Mr. Soifer said BZW had to spend the money. "In recent years the costs of competing with Merrill Lynch, Morgan Stanley, and Goldman Sachs ate up BZW's profits," he said.
Most U.S. commercial banks buying investment banking businesses say they do not intend to compete against Wall Street's bulge-bracket firms.
For example, First Union Corp., which has agreed to acquire Wheat First Butcher Singer, insists that the $470 million acquisition will simply enable the bank to extend its services to midsize businesses. "NationsBank would like to be able to do all the business their corporate customers need, including conducting their (initial public offerings) and selling them to other bank clients," Keefe's Mr. Duffy said.
