As rival Wall Street firms battle to expand, either by merging with each other or spending heavily to add new capabilities, Brown Brothers Harriman & Co. is quietly pursuing a "less is more" strategy.

The firm is one of the few partnerships left on Wall Street, and it embraces the distinction. Its partners' room, a 1929 reconstruction of the original, conjures up the firm's 19th-century past. Brown Brothers was founded in 1818 as a financier to cotton traders and other merchants in the Wall Street area. A portrait of the four Brown brothers hangs at the front of the room, seemingly to inspire the partners as they sit at their rolltop desks.

The firm, whose partnership ranks have been drawn from some of America's most powerful families - in addition to the Harrimans, it counted a patriarch of the Bush family in its membership - is steeped in the clubby, male-dominated image of old Wall Street. It was big news in 1998 when Brown Brothers named its first two female partners.

Despite this tradition-laden, even stuffy, image, Brown Brothers is not ignoring the shifting financial landscape. It is trying to figure out how best to navigate the New Economy. At the same time, it is evaluating where it wants to continue to compete, exiting certain businesses as it expands others. In May, for example, the bank laid off 78 equity analysts, traders, and other sell-side support staff in its institutional brokerage division after deciding that it could not afford to compete for increasingly expensive analysts.

The alternative - to turn into a full-fledged investment bank - was not an option. Most other Wall Street firms can more than offset the cost of research departments with underwriting revenues. Brown Brothers was one of the few pure agency brokerages. Corporate underwriting isn't in the company's blood, say its partners. For one, its corporate clients are largely private and have their own reasons for staying that way.

"The underwriting business is a different culture from the banking business," said Anthony Enders, the 63-year-old managing partner who joined the firm as a credit officer 38 years ago. "It's pretty hard, we think, to take commercial bankers and investment managers and turn them into investment bankers."

What Brown Brothers has resolved to be is a hybrid of private banking, custody, investment management, and brokerage, as well as to be engaged in merger advisory, foreign exchange, and corporate lending. The firm does not advertise, relying solely on word of mouth, referrals, and what it considers to be a "warm" form of cold-calling. Its 37 partners and 3,000 employees worldwide are valued for keeping the secrets of their clients.

Its business mix is perhaps most similar to that of Sanford C. Bernstein & Co., a New York-based research and advisory boutique that recently agreed to be sold to Alliance Capital Management. Still, it is an oddity. The firm is the only bank that is a direct member of the New York Stock Exchange, and it is the last entity of its kind to take advantage of a special provision in the Securities Exchange Act of 1934 that permits a bank to be a member of the NYSE without registering as a broker.

Small investment banks, more and more often absorbed by their larger counterparts, are a "disappearing breed," said partner Ronald Hill, the principal strategist for the bank's sell-side research department, which now focuses solely on several industrywide research products bought by portfolio managers and investment strategists. (Seventeen equity analysts still support the investment management business.)

To that end, Brown Brothers intends to remain independent, a model its partners say that allows it to keep to a longer-term focus when setting strategy. "You don't have to meet each quarter's expectations," said Mr. Enders, who is apt to answer his own phone. "We all know what's going on in the business, and we all know why we've done it and what we've done … Having distant shareholders would be a problem for us."

In 1999, the firm earned pretax income of $149 million on revenues of $598 million. For the first six months of this year, revenues are up 35%, to $371 million, and profits are up 35%, to $92 million. Perhaps the firm owes some of this success to a keen sense of what it does and does not do well. Mr. Enders makes no bones about being a niche shop, saying the firm is "convinced that, unfortunately, we can't do everything for everybody."

Unlike the broad approach of larger competitors like Chase Manhattan Corp. or Goldman Sachs & Co., Brown Brothers is selective about clients and markets and wary of spreading itself too thin. Hence the exit from research. "We really hoped and thought that there was a place in this market for really what's a completely independent research house, but the economics are really against it," Mr. Enders said.

"Part of our strategy is to leverage our return on capital by being in businesses with good growth prospects like private equity and investment management, but which require very little capital," he said.

Although it is best recognized for its securities custody and private client businesses, Brown Brothers has been taking steps into the worlds of e-commerce. It spends more than $100 million each year developing technology. Last month, Brown Brothers introduced an Internet-based foreign exchange trading system, FX Worldview, adding its name to a growing list of banking companies that offer the service.

Another electronic trading product, BBH Connect, was introduced in 1998 and has become a significant part of Brown Brothers' brokerage business, especially as block trading revenues have declined since the retreat from sell-side research. BBH Connect processes equity trades from execution through to settlement and custody. Foreign banks that use Brown Brothers' custody services for their assets in the United States use the service to process orders for their retail client base.

"When people think about growth and change, the last thing they think about in the Internet age is Brown Brothers Harriman," said Rick Spear, a director and head of capital markets e-commerce at Oliver Wyman & Co., a financial services consulting firm. "It seems like they're the kind of firm that doesn't innovate ahead of the group, they innovate when they're ready for it," Mr. Spear said.

Brown Brothers' oldest business is lending. Members of the Brown family, originally linen merchants, started a commercial bank after realizing they could make more money financing the trade then importing the goods. Today, about a third of Brown Brothers' commercial loans are to importers of various commodities, such as coffee, cocoa, sugar, textiles, precious metals, petroleum, and seafood. Other industries include medical technology companies and insurance companies.

The bank, which cross-sells money management, foreign exchange, and other services to its borrowers, focuses on middle-market, closely held companies with revenues of between $20 million and $300 million. Brown Brothers takes a "life-cycle approach" to its corporate finance relationships, said Carter Sullivan, the 42-year-old partner who heads up corporate banking in the New York office. "At some point these private companies have a liquidity need."

At the core of the bank's lending philosophy is advising, something Mr. Sullivan says helps the bank to distinguish itself as more and more competitors consolidate and lose their personal touch.

"It's a philosophy that doesn't fit every potential borrower," said Mr. Sullivan. "There are borrowers that don't particularly want their commercial lender as involved in their business, but it's the way we approach the business. I think it further differentiates us and is an advantage for small business owners that would like some input from their bankers."

Brown Brothers is using its reputation in the venture capital community to begin attracting New Economy borrowers, a segment the firm said it would like to know it better. The firm usually takes warrant positions in select companies that need a relatively small amount of senior debt after the venture equity phase. Brown Brothers, which is set to go live with a special Web site for "emerging growth partners" in the coming weeks, is a "good fit" for these companies, Mr. Sullivan said, since the partnership structure enables Brown Brothers to react more quickly than competitors.

"The small emerging growth company might not think of Brown Brothers as the first stop. (But) we are fairly well known within the venture community in New York City," Mr. Sullivan said. "We've built up a nice little book of business in providing senior loan financing to emerging growth companies."

Brown Brothers' private equity division and a closely related mergers and acquisitions group are two of the firm's most hip businesses. Employees are younger, career tracks are faster, and corporate clients are, well, techier.

Here, Brown Brothers has found a way of distinguishing itself. Instead of dabbling in venture capital or leveraged buyouts, Brown Brothers provides private equity capital to "mid-sized companies that are at some critical inflection point," said Lawrence Tucker, the 57-year-old partner in charge of private equity and M&A. Private equity partnerships are funded primarily by outside investors. Annually, these partnerships make only a handful of equity investments and another handful in mezzanine debt. Since the firm's start in private equity 12 years ago, it has organized $2 billion in backing for roughly 40 companies.

The focus is on the telecommunications, media, and health care industries rather than "the whole waterfront," Mr. Tucker said.

One of the company's earlier investments, in late 1991, was in Long Distance Discount Service, which has since grown into WorldCom. Brown Brothers was LDDS's first institutional investor, back when its equity capitalization was just a fraction of what it is now. The investment provided "a good front-row seat to watch the development of the telecom industry," Mr. Tucker said.

The mergers and acquisitions group, from which the private equity group sprouted, specializes in family-owned business deals that would likely fall below the radar screen of bulge bracket Wall Street firms. The typical customers are companies with enterprise values of $50 million to $500 million. Many offer marketing and telecommunications services or outsource business services such as equipment rental or consulting.

Again, Brown Brothers does not try to compete with the big guys. "We don't want to be on the [M&A] league table for anything," said John Molner, a 37-year-old managing director of mergers and acquisitions. "What we want to do is find a limited number of transactions that we think we have a high probability of closing."

The chance to cross-sell other services is a key to the business. "There will be a lot of cases where M&A is our first exposure to a family," Mr. Molner said. "That may earn us the right to introduce an investment manager."

The private wealth business is perhaps the quintessential Brown Brothers market, although it represents only about a third of the bank's overall money management business. An increasingly competitive market in the New Economy, private wealth managers have turned their focus to the newly affluent, not the market segment typically associated with Brown Brothers.

The firm's target market is individuals with $5 million or more of investable assets. It has a network of private client and institutional marketers "that go out in a very targeted way to talk with prospects that meet the profile," said Brian Berris, the 55-year-old partner who oversees investment management. In addition, law and accounting firms are among the "broad range of organizations that look to us as a member of their advisory team," he said.

Competitors such as Bessemer Trust vie for clients with a similar hands-on approach, while Merrill Lynch, Morgan Stanley Dean Witter, and J.P. Morgan & Co. have introduced online services that combine financial planning, brokerage, and private client services and are meant to appeal specifically to the younger, more tech-savvy affluent.

Mr. Berris said outsiders would be surprised by his firm's experience with new entrepreneurial wealth. Over the past two years, he said, 75% to 80% of new client assets under management came from entrepreneurial activities as opposed to inheritance. "I think many times we've traditionally been viewed as a firm with deep roots with older money, but our business has transformed itself over the last 10 or 15 years into a firm (that) is dealing extensively with new entrepreneurial wealth," Mr. Berris said.

Brown Brothers manages more than $36 billion in fixed income, equity, and balanced funds, about two-thirds of it for institutional investors. The firm handles money for insurance companies and banks, middle-market pension funds, endowments and foundations, and off-shore clients, in addition to individual clients. Investment management contributed 17% of the bank's revenues in 1999.

Completing the loop is custody, the largest of Brown Brothers' businesses. Indeed, custody could be considered the backbone of the firm. An international business that is key in forging other relationships overseas, custody produces the single largest share of revenue - it contributed 36% of total revenues in 1999 - and fortifies several other lines of work, including foreign exchange, brokerage, and cash management.

With offices in Cayman, Dublin, Hong Kong, London, Luxembourg, Tokyo, and Zurich, Brown Brothers has more than $900 billion of assets under administration. That is far below the big three - Chase, Bank of New York Co., and State Street Corp., each in the trillions.

Investments flowing to and from the United States from foreign countries have contributed to rapid growth in the custody world, including Brown Brothers, said Douglas "Digger" Donahue, the 49-year-old partner who oversees investor services worldwide.

The firm has three core customer bases: onshore and offshore mutual fund companies such as Fidelity Investments and Credit Suisse Asset Management; foreign financial institutions - which increasingly use Brown Brothers for global activity, not just as a U.S. subcustodian; and global insurance companies. One of the firm's services is to advise on regulatory and market changes for clients making investments in foreign countries. "We want to make sure that as people invest cross-border in various corners of the world, that they are aware of developments in those markets," Mr. Donahue said.

Whether Brown Brothers will be able to resist the trend to merge with a bigger Wall Street shop remains to be seen, but its partners seem determined to go it alone. "Conventional wisdom says scale, volume, breadth is the only winning strategy," Mr. Donahue said. "We get great satisfaction out of proving that that's not really true."

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