As the merger of Chase Manhattan Corp. and Chemical Banking Corp. hurtles toward completion, a new bank brokerage powerhouse is taking shape.
With a combined sales force of 300 retail brokers and projected investment revenues of as much as $100 million this year, the new Chase brokerage will be the second largest run by a bank - behind only Citicorp Investment Services.
To be sure, Chase and Chemical have substantial hurdles to overcome in the merger, which is slated to occur by March 31. Among them: melding markedly different sales cultures and consolidating two sprawling brokerage operations.
But rivals of the new Chase are anything but sanguine.
"It's still a jumbled mess over there right now, but you can be sure that once they get it together they'll be a force we'll have to reckon with," said a Citicorp brokerage executive, who asked that his name not be used.
The developments are being closely watched in bank brokerage circles as a blueprint for merging investment programs. With a merger boom under way in banking, it's likely that other companies will be grappling with the same issues Chase and Chemical are now confronting.
The new Chase, with assets of $300 billion, is expected to wage a fierce battle for retail customers in the New York metropolitan area - one of the most attractive in the United States, and one of the most competitive, experts say.
"New Jersey, New York, and Connecticut represent a healthy chunk of the wealth in the country," said Les Dinkin, managing principal of NBW Consulting, Westport, Conn. The merger, he added, helps the two banks "get into investment battle trim."
Officials at both Chemical and Chase say they are determined to swipe customers from other bank brokerages - and from established nonbank rivals such as Merrill Lynch & Co.
J. Peter Benzie Jr., a Chase Manhattan executive who has been tapped to oversee the new brokerage, said in a recent interview that he will focus on both the middle market - seen as Chemical's strength - and on wealthy clients - Chase's forte.
Mr. Benzie, currently president of Chase Manhattan Investment Services, pointed to Chase's swank investment office on Park Avenue. It was built, he said, "to smell like, taste like, and feel like a Merrill Lynch office. It's clearly aimed at the wealthy clients."
Mr. Benzie declined to discuss the merger in detail. So did Jack Stack, a Chemical executive who will be managing director for Chase's direct financial services group and Mr. Benzie's boss.
But interviews with others inside and outside the company suggest that the top brass at Chase Manhattan have high expectations for the investment programs.
And with good reason, according to Kenneth Kehrer, a consultant in Princeton, N.J. Chemical sold $1.4 billion of investments in 1995; Chase was close behind, with $1.3 billion in sales.
Mr. Kehrer predicts that the new Chase will sell as much this year, and possibly more, as the two brokerage gel together.
Mutual fund vendors and brokerage services companies are lining up for a chance to do business with the new Chase.
Fidelity Investments, which was already on Chase's preferred list, has been courting both banking companies since the merger deal was announced last August, according to Paul Hondros, president of Fidelity Investments Institutional Services Co.
"We've met with them regularly and have already received some indication that our Advisor Funds are on the list," Mr. Hondros said. "They'll be in our top 10 in terms of sales volume."
BHC Securities and National Financial, which clear brokerage trades for Chase, are both vying for the post-merger contract against Pershing, which clears for Chemical.
Neither of the companies seems to have a clear edge. But a former brokerage executive at Chemical said that before the merger was announced the banking company was mulling a switch to National Financial, which already had close ties to Chase and Mr. Benzie.
Officials at the three companies are skittish about the outcome of the negotiations, but Charles Naddaff, president of BHCM, a subsidiary jointly owned by Chase and BHC, said the chances for profit are too great to pass up.
"Their size affords such a great opportunity - the bigger the bank, the more sales will pour through it," he said.
The merger, however, will exact a price. Chase and Chemical expect to trim their job rolls by more than 12,000 afterward, though sources say the brokerage unit may come out relatively unscathed.
No brokers are expected to be hit by layoffs, although 40 to 60 members of the brokerage support staff could lose their jobs, senior executives at Chase and Chemical said.
The ax is expected to fall most heavily on employees of the old Chase. For years it had three distinct sales teams, each with a back-room staff handling such chores as record keeping and investor services. They are expected to be consolidated into one unit.
Mr. Benzie would only say that "right now there are areas that we think are underserved, and where we could reallocate the sales force. There are some geographic areas, such as upstate New York, and Connecticut, where there is no overlap."
But some bank brokerage executives predicted brokers will leave Chase, whether or not they're laid off.
"You're going to have brokers whose territories overlap, and then some are not going to be happy and will just leave, especially if there are issues concerning compensation," said an executive at Fleet Investment Services who requested anonymity.
He said his experience of mergers suggests that Chase could lose 15% to 40% of its brokerage staff within a few months of completing the merger.
To combat such an exodus, Chase is said to be revamping its brokerage pay system to offer brokers a salary and incentives tied to the revenue they bring in.
Still, sources say a big question mark is whether Mr. Benzie and Leonard E. Malkin, who ran Chemical's retail brokerage program for four years, will be able to work together for long. Plans call for Mr. Malkin to report to Mr. Benzie as Chase's national sales manager.
"Len's a bright man, but how does anyone react to going from No. 1 to being No. 2?" asked a former brokerage executive familiar with both men.
Mr. Malkin did not return repeated phone calls.
By all accounts, Mr. Malkin is a stern and ambitious man who revived Chemical's brokerage from the bones of two botched sales programs run by outside companies.
Mr. Malkin, who helped run the retail branch network at Manufacturers Hanover before it merged with Chemical in 1991, is seen as a dyed-in-the- wool banker. He gained all his brokerage experience as head of Chemical Investment Services.
The affable Mr. Benzie is cut from different cloth, having been a broker with the old Shearson Lehman Brothers company for more than a decade before joining Chase in 1992.
"My sense is it will be Peter's shop and Len will run a small slice of the back room," a former Chemical brokerage executive said. "It wouldn't surprise me if Len left after a short time."