firms said Thursday that brokerage companies would have to start offering traditional banking products in order to stay competitive in the new world of financial modernization.
Speaking at the annual meeting of the Securities Industry Association, Goldman Sachs Group Inc. chief executive officer Henry Paulson and John "Launny" Steffens, a vice chairman at Merrill Lynch & Co., said securities firms would also need to sell insurance, in addition to providing a broad array of financial services products.
But Mr. Steffens added that his own company is most of the way toward getting where it needs to be. "Our global reach is better than our competitors'," he said. "We've already added along those lines through acquisitions large and small during the last two years."
The two executives said the financial modernization bill now wending its way through Washington did not necessarily mean brokerages would have to merge with commercial banks or insurance companies in order to survive.
Goldman, for example, is making internal adjustments in order to meet the changing landscape, Mr. Paulson said. The company is developing an Internet-based platform to serve wealthy clients and is moving high-net-worth businesses from its equity division to its investment management division.
"This allows us to focus more clearly on how to use technology to serve our private clients and to meet changes in investor behavior that we are seeing in the marketplace," he said.
Meanwhile, Securities and Exchange Commission Chairman Arthur Levitt said financial modernization would help to clarify the SEC's role in some areas such as oversight of bank advisers and investment company mutual funds.
In the bill's final wording, the agency is "fairly protected in terms of principles and functional regulation," Mr. Levitt said.
Ultimately, there seemed to be no dissension among the association's members about financial modernization. Though opinions varied about what course to take in regard to mergers and acquisitions with noninvestment banks, those who spoke about financial modernization consistently praised the bill.
Marc E. Lackritz, president of the association, credited former SIA chairman Irving Weiser for his efforts to speed financial modernization. Mr. Weiser, CEO of Minneapolis-based Dain Rauscher, formed a trade group of insurance, banking, and securities firms last year called the "Minnesota Triplets" that helped resolve differences between those industries about how financial modernization reform should be shaped.
Mr. Lackritz also predicted that the new legislation would bring more sweeping changes to the industry. Bank-owned subsidiaries now make up 105 of the 700 members of SIA, up from just 56 in 1994.
"The passage of financial modernization legislation will hasten even greater consolidation and competition as securities firms, banks, insurance companies will all be free to choose their business partners to provide the best mix of financial services to their clients," Mr. Lackritz said.