By buying Quick & Reilly, Fleet Financial Group is gaining not only the nation's third-largest discount broker but a large presence in a new stomping ground - equity market making and securities clearing.
As part of the $1.6 billion acquisition package announced Tuesday night, Fleet will get JJC Specialist Corp., a New York Stock Exchange market maker; U.S. Clearing Corp., a securities clearing operation; and Nash, Weiss & Co., a Nasdaq market maker.
That's on top of 500 brokers in 116 branch offices.
By the time the acquisition is finalized, Fleet may well become the only bank to own an New York Stock Exchange specialist unit - one of a group of 36 firms responsible for maintaining stable markets in stocks assigned to it by the exchange. There are currently no banks operating as specialists on the Big Board.
Fleet would also get its feet wet making markets in Nasdaq Securities, which would be another first for the bank.
By entering the NYSE, Fleet is "breaking new ground here," said Tom Theurkauf, a bank analyst covering Fleet for Keefe, Bruyette & Woods . "They're not only going to own a specialist unit, they're going to own the second-largest on the NYSE." Spear, Leeds & Kellogg is the largest in terms of the number of issues listed.
JJC is one of the more aggressive specialists at the Big Board and controls 8% of the market, said Michael Sears, a brokerage analyst for Lehman Brothers. That control allowed JJC to generate roughly 12% to 13% of the gross revenues of all NYSE specialists in 1996.
JJC "is an incredibly profitable business with margins as high as 50%," Mr. Sears said.
Mr. Sears said he didn't see any conflict of interest in a bank's operating a specialist unit, adding that the NYSE tends not to object to increased capitalization for specialists.
One Big Board specialist said he didn't think the Fleet acquisition of Quick & Reilly would affect the way JJC is run. As head of JJC, Chris Quick, is one of four brothers who help their father, Leslie C. Quick Jr., to run the firm.
"He's been aggressively expanding that business," the specialist said.
But Fleet is also getting Nash, Weiss & Co., the over-the-counter market maker that Quick & Reilly acquired last March. But Nash Weiss has yet to make itself pay. Quick & Reilly is looking to expand Nash's institutional presence.
In discount brokerage, Fleet gets "a brand name" it can now sell to its clientele, who might previously have gone to firms such as Charles Schwab & Co., said one analyst who declined to be identified. "They get credibility in terms of distributing an investment management product," he said.
The deal also would inject capital into Quick & Reilly's bid to compete with Charles Schwab and Fidelity Brokerage Services. "This should get Quick & Reilly up to speed, relative to their competition," the analyst said.
Quick & Reilly lags Schwab in the development of its no-transaction-fee mutual fund supermarket but is working on a system that will let it bolster that presence.
Charles Schwab's OneSource fund mart, established in 1992, has nearly 1,100 funds from 140 families; Quick & Reilly looks to nearly double the number of funds it offers, from 295 to 500 or 600 by yearend.
Tied in with all those businesses is U.S. Clearing, Quick & Reilly's securities clearing arm, which clears for Quick & Reilly's customers, as well as for more than 300 firms and banks.
Quick & Reilly is a well-rounded firm and therefore a good buy, said Richard Barrett, a managing director at UBS Securities, Fleet's adviser on the deal. Quick & Reilly has built a totally integrated brokerage business, expanded its discount brokerage business, accumulated exchange and over-the-counter execution, and built a clearing arm.
"They're in all the segments, so if some of the profitability gets squeezed one way or the other, they're still going to benefit," he said.