With its $1.6 billion deal for Quick & Reilly Group, Fleet Financial Group has declared itself a contender in the race to capture the savings of an increasingly investment-savvy public.
Fleet would become the owner of a fast-growing discount brokerage - the third-largest in the United States - with 1.1 million clients, $20 billion of assets under management, and 116 offices in 30 states.
The stock transaction, which is expected to close in the first quarter of 1998, would also give the Boston-based banking company a powerful channel for distributing its growing stable of investments. Its recent deal for Columbia Management Corp., Portland, Ore. - slated to close in the fourth quarter - would expand Fleet's assets under management 40%, to $70 billion, including $17 billion in mutual funds.
"This deal positions Fleet to say they have the creativity, the products, the people, and the track record to help customers with wealth creation rather than just savings," said Charles Wendel of Financial Institutions Consulting, New York.
At a press briefing Wednesday, Fleet's chairman and chief executive officer, Terrence Murray, said Quick & Reilly "fits perfectly into Fleet's vision of where we want to go.
"Investment management and brokerage have become a very major business for us," Mr. Murray told reporters. He said Fleet would earn 40% of its revenues from fee-based services after the deal closes, up from 33% now. Investment product sales currently account for $38 of every $100 in fee income, according to Fleet's second-quarter earnings report.
Mr. Murray said the acquisition would be dampen earnings by 6 cents a share, or 1%, for one year after the deal closes. After that, he said, Quick & Reilly would contribute 2 or 3 cents to earnings per share.
He said he expects Quick & Reilly's net revenues - which totaled $379 million in the fiscal year that ended in February - to grow by as much as $40 million a year. That includes $25 million from potential cross-selling of services and $15 million in cost savings.
Fans of the planned acquisition noted it isn't without risks. "Quick & Reilly's business is a volume-driven, fee-based, commission-driven business," said Carole Berger, an analyst at Salomon Brothers. "If the market were to decline dramatically, then it would be hard to reach their near term targets."
But the reviews were generally favorable.
"This is definitely breaking the mold for Fleet," said Thomas Theurkauf, an analyst at Keefe Bruyette & Woods. "They're building out their franchise in terms of products and geography. From our vantage point, it's a win."
Market watchers said the deal underscores banks' efforts to take back customers lost to nonbank competitors in recent years. Throughout the year, banks have been striking deals for regional brokerage and investment banking boutiques.
"Banks' market share will start to reverse its decline and start to improve," said Mr. Wendel. Given their strong capital and a healthy economy, "banks are in a position to dictate and lead the convergence" of businesses in the financial services sector.