It is possible for a midsize brokerage firm to stay out of the merger fray, but it is not easy. So say two regional brokerage executives who recently sold their firms to large banking companies.
"Banks will increasingly take market share away from the industry," said Marshall B. Wishnack, chairman and chief executive officer of First Union Capital Markets Corp. Mr. Wishnack headed Richmond, Va.-based Wheat First Butcher Singer & Co. before selling it to First Union in February 1998.
Speaking on Tuesday at a meeting of the Securities Industry Association, Mr. Wishnack said the competitive environment is only going to get more challenging, and banks will continue to steal the thunder of independent brokerages.
William B. Summers Jr., chairman and chief executive officer of McDonald & Co. Investments Inc., agreed.
"Everyone would like to remain independent, but it is more difficult for a midsize firm now," he said. "There will always be room for niche firms, but the midsize firms occupy a tough position."
Mr. Summers sold McDonald & Co. to KeyCorp in October.
However, there is upside to the bank-brokerage combination, the two executives said.
Mr. Summers said he liked the close geographical and cultural fit between KeyCorp and McDonald. The brokerage's offices are just two blocks from the bank's headquarters in Cleveland.
But even the most advantageous marriage involves some risk.
"We are consolidating into a consolidating industry," Mr. Summers told conferencegoers. "For all we know, KeyCorp could be acquired, and we have no idea what that would mean for us down the line."
Mr. Summers said in a later interview that before he agreed to sell McDonald & Co. last June, he made a point of getting confirmation from the bank that no big merger plans were in the works. Another concern was making sure McDonald's top executives would remain in charge of their units after the acquisition closed.
Though investment bankers and commercial bankers should learn to cooperate if they hope to accrue the benefits of cross-selling, he said, a bank would do well not to radically alter the management structure of an acquired securities firm.
Some of McDonald's brokers left after the bank bought the firm, but these were not top producers, Mr. Summers said. The best people stayed on, he said, because they were more generously rewarded by a large retention pool created in the deal.
Mr. Wishnack said he finally decided to sell Wheat First to a bank because he was worried about attracting top employees as better-capitalized players moved into the field.
"When we decided to partner up with a bank, we chose one that we thought would not just help us survive, but would be a leader as the industry changes," Mr. Wishnack said.
He said he chose First Union-the nation's sixth-largest banking company- because it had already developed a large capital markets presence. At the time of the Wheat First acquisition, the main product missing from the bank's capital markets unit was equities, Wheat First's strong suit.
"I did not just want to insert the firm into a bank that did not have some capital markets capability," Mr. Wishnack said.
Big-ticket acquisitions like these are a sign that banks have gotten serious about moving into this business, said U.S. Bancorp senior managing director Wayne R. Wilson. Mr. Wilson, who ran U.S. Bancorp's small retail brokerage business, is helping the bank integrate its acquisition of regional brokerage Piper Jaffray.
