By almost any measure, these are the best of times for Wall Street M&A bankers.
Nine of the 10 largest mergers in corporate history were announced last year, bringing hundreds of millions in fees to the firms that advised on the deals.
But these blockbuster mergers disguise the fact that the historical investment banker role of counsel and confidant has been eroding for years as corporate clients become more deal-savvy and cost-conscious. And on-line brokers are starting to poach the investment banks' domain of selling deals to the market.
Though these phenomena are hardly new in the world of finance, they were laid out with unusual frankness at a conference held Tuesday in New York, called "The Role of the Investment Banker in the 21st Century."
The diminishing power of the investment banker was illustrated by Edgar H. Grubb, chief financial officer at Transamerica Corp., who said investment banks remain useful to his company for their research, as providers of capital, and as counterparties in Transamerica's 400 derivatives contracts.
But when it comes to matters of utmost corporate sensitivity, such as devising defenses against a hostile takeover attempt or gathering intelligence on a competitor they would like to buy, Transamerica's lawyers or in-house staff get the call. "The things old investment banking relationships brought are things we can do on own," Mr. Grubb said.
Transamerica is hardly unique. For years, big financial services companies such as Bank One Corp., First Union Corp., and Fleet Financial Group have conducted in-house much of the work formerly done by investment bankers.
For their bigger deals, these companies hire investment bankers to provide opinions that the prices they are paying are fair to their shareholders.
But mostly, they enlist Wall Street bankers to sell their ideas to the investment community.
"Managements need someone to help tell their story so markets see it the same way," said James H. McNaughton, head of the financial institutions group at Salomon Smith Barney.
But this need seems also to be on the wane. In arranging the largest and arguably most surprising financial services merger ever, neither Citicorp nor Travelers Group called an outside investment banker for advice or to help sell the $70 billion merger.
It isn't just the Fortune 500 that is finding less need for investment banks these days. Retail investors are increasingly turning to on-line brokers for securities trading. And soon these brokers may be selling public offerings directly to investors.
On Tuesday E-Trade Group Inc. announced that it would take a 28% stake in an investment bank co-founded by former Robertson, Stephens & Co. chief Sanford Robertson. The firm will underwrite public offerings by selling the securities directly to investors via the Internet.
Bankers at the conference said they viewed the E-Trade announcement as little threat to Wall Street's lucrative IPO underwriting business.
Companies going public want some control over who buys their stock, to ensure that not too much is traded after the offering is completed, a banker said, and companies would forgo that privilege by doing their IPOs via the Internet.
Investment banks have reacted to the new competition by undergoing massive consolidation in the past two years. The rise of alternative forms of brokerage is expected to force many more midsize firms to sell to commercial banks or insurance companies.
Investment bankers have also responded to their dwindling role at home by seeking more business abroad. With the M&A bug hitting Europe, U.S. investment banks rank as the region's leading advisers.
New business abroad has helped offset any drops in fees at home. Indeed, fees in the most profitable investment banking business have all held steady during the 1990s, except for junk bonds, where underwriting fees have dropped about 40%, according to Kirk R. Wilson, co-head of the financial institutions group at Morgan Stanley Dean Witter & Co.
But perhaps the biggest change to investment banking, conference speakers said, was what Mr. McNaughton called the "democratization of information." Financial information that was once the realm of a few investors or securities firms is now increasingly accessible to the public.
This has enabled anyone who cares to become more wise to the ways of banking.
Ellen Taus, treasurer at the New York Times Co., one of the conference's co-sponsors, urged corporate officials to track the fees they've paid their investment bankers and gauge the level of service they've received. "By all means, keep score," she said.