U.S. banks figure to benefit from competition among the stock exchanges and globalization of the equity markets, top stock exchange executives said.
New York Stock Exchange chairman Richard A. Grasso and his counterpart at the Nasdaq trading system's parent, Frank Zarb, said last week that they expect bank stocks to be a stabilizing force as the markets undergo sweeping changes in the years ahead.
They predicted portfolio managers structuring new types of funds and new investors from overseas will be eager investors in bank equity. Thanks to their perceived stability, banks' shares will play "an enormous role, providing unique opportunities" as securities markets restructure and become more global, Mr. Grasso said.
The executives were interviewed at last week's annual meeting of the Bond Market Association. If they are right, banks could receive wider investment support, which could help prolong this decade's sectorwide rally.
Just a few days after the discussion, one of the biggest prospective changes became public, when the NASD proposed to combine with the American Stock Exchange. That deal, which could be voted on this week, aims to use the best parts of the NASD's electronic trading and the American's in- person auction system to compete against the New York exchange and also spur more international trading and a broader variety of products.
Neither Mr. Grasso nor Mr. Zarb discussed the plan directly at the conference, but both chairmen clearly telegraphed that dramatic changes could be expected for their industry.
"We are at the dawning period of the most significant era in globalizing markets," Mr. Grasso said. "The New York Stock Exchange will be a very different market in the next few years."
Financial institutions "will participate as known names that attract investors" to the changing marketplace, Mr. Zarb said. He said the U.S. banking business is easily understood by the foreign and other neophyte investors that the U.S. markets plan to woo in years ahead.
Globalization will be driven by a number of factors.
The New York Stock Exchange may soon remain open 24 hours a day, with traders working in shifts, Mr. Grasso said. U.S. equities, including bank stocks, will be traded more frequently in foreign currencies, he added.
Also, as more overseas companies privatize, they will come to the U.S. market with stock sales, narrowing the ratio of foreign versus domestic shares that trade on the New York exchange.
With the rise in the number of companies being traded, bank's will be seen as unique values, Mr. Grasso said.
He said some U.S. and foreign companies in the same field may be interchangeable as investments because the businesses are structured so similarly.
U.S. banks, on the other hand, are different from their foreign counterparts and therefore would always be stand-alone investments, he said. "You don't have as much of a generic approach in banking as you do in some other industries."
The National Association of Securities Dealers, which owns Nasdaq, sees banks as partners as it steps up competition against the New York exchange for global company listings. "Banks are 'names' in the world, and the NASD wants to be known as the home for these companies," Mr. Zarb said. Also, he said, banks more than ever fit with the NASD's entrepreneurial bent.
"Leadership in banks today is a completely different breed today," he said. "The top executives are very, very bright and they have very talented guys around them."
Right now, 98 banks and savings and loans trade on the New York Stock Exchange and 325 on the Nasdaq, according to figures from the organizations.
Bankers like the exchanges' efforts to attract more investors.
Overseas investors hold between 3% and 5% of Norwest Corp.'s outstanding shares, up from virtually nothing 10 years ago, said Robert Strickland, investor relations chief at the Minneapolis banking company. Stepped up activity "absolutely would be welcome."
He, like Mr. Grasso and Mr. Zarb, said bank stocks appeal because of their relative performance stability and the benefits of a flourishing economy.
But the exchanges' evolution is not without challenges. Systems will be necessary to access and monitor the various types of investments.
Also, investors will have to be protected from foreign companies that want to trade in the U.S. but do not follow its tough accounting standards, Mr. Grasso said.
U.S. securities markets "by no means own the future, but we have a great, great start," Mr. Zarb said.