Frank Newman, the chairman and chief executive officer of Bankers Trust New York Corp., on Friday issued a warning to the financial services industry against rushing into megamergers.

"It shouldn't be taken for granted that just because companies are put together they're going to be successful," he said in a speech here.

"In other industries where industrial conglomerates have bought a whole bunch of different companies and tried to put them together, they have ended up selling off a lot of them," he said.

Mr. Newman's remarks at the Securities Industry Association's annual conference came one day after Philip J. Purcell, head of Morgan Stanley, Dean Witter, Discover & Co., told attendees to expect $100 billion deals between financial service companies within the next three years.

Mr. Newman, formerly deputy secretary of the Treasury, agreed that mergers will continue. But he urged banks and other players to look before they leap.

For mergers to be successful, he said, the people at the combining firms must work closely together-a management challenge that gets more difficult as deals become larger.

"I'm not saying becoming bigger can't work for anybody, but I am trying to say it depends very much on the individual nature of the firm," he said.

Mr. Newman used his own bank's combination this year with the securities firm Alex. Brown & Sons Inc. as an example of the types of deals that can work. Alex. Brown expanded Bankers Trust's product line to include equities, but it did not necessarily bring the bank any additional size.

What's more, Bankers Trust and Alex. Brown had similar cultures and business strategies. Both companies target high-growth, non-investment- grade companies. And, unlike other commercial banks, Bankers Trust years ago adopted a capital markets culture. That enabled its people to mesh well with the investment bankers of Alex. Brown.

"People with more traditional commercial banking cultures are going to be facing really serious cultural issues in combining with investment banking firms," he said. "It's already a challenge for large commercial banks with significant corporate businesses and significant retail businesses to deal with those two cultures."

Mr. Newman, a former executive of both Wells Fargo and BankAmerica Corp., said most mergers in the retail banking industry have been focused on expense reduction-not generating revenues. Those deals have been successes, he said, adding that "there's more of that yet to be had."

But that doesn't mean mergers driven by sheer size are necessarily a good thing. "Our industry is one that is extraordinarily people-focused. It's very important to get specific people to work with other specific people, and the larger the company becomes the more difficult that is to do," he said.

The theme of consolidation permeated the annual securities industry conference, with attendees differing on what types of deals would work best.

"Financial services are becoming a global business and there's a requisite need for scale," said Richard Grasso, chairman of the New York Stock Exchange. Fleet Financial Group's pending acquisition of Quick & Reilly Group, for example, would bring additional capital to the firm's Big Board market-making arm, which would be good for the stock exchange.

He added, however, that executives cannot generalize about the value of mergers. "Each firm needs to find its own niche and they are going to find it in different directions."

As for Bankers Trust, Mr. Newman said it has no plans to follow his competitors and acquire asset managers. The company competes in three facets of the investment management business-index funds; international investment management, including Australia; and wealth management-and is not looking to add mutual funds to the mix.

"As for others, I wish them luck in the mutual fund business, but it's not where we're interested," he said in a press briefing after his address.

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