Chase Manhattan Corp., Citicorp, and J.P. Morgan & Co. have been identified in a new study as the three U.S. commercial banks with the best chances of succeeding as global investment banks.
The report, a joint project of A.T. Kearney and The Economist, said these three companies are in various stages of building their investment banking capabilities, especially underwriting stocks and bonds.
But it said Citicorp, with its pending Travelers Group merger and its Salomon Smith Barney subsidiary, may be in the best position to compete because of the combined companies' reach and market capitalization.
In the study, the three commercial banking companies are grouped with bulge-bracket leaders Merrill Lynch & Co., Goldman, Sachs & Co., and Morgan Stanley, Dean Witter & Co. as the six institutions most likely to end up on top of the global investment banking heap in coming years.
"The feeling is that only a few companies have emerged that have the resources and the market cap to compete," said Keith Stack, a consultant at New York-based Kearney.
The report also said the U.S. banks would grab most market share, leaving little room for European giants like Deutsche Bank, ING Barings, or ABN Amro. Prominent U.S. competitors like Bankers Trust Corp., BankAmerica Corp., and First Union Corp. that have been building their investment banking capabilities did not make the short list.
Mr. Stack said distribution and market capitalization are the differentiating factors.
Worldwide distribution for products and services will be critical, he said, because capital markets are becoming increasingly international. U.S. institutions are further along in developing such distribution networks. They also have access to a bigger talent pool, he said.
Market capitalization is also critical because investment banking has become increasingly risky, he said, with institutions taking positions along with their clients.
Though bankers and consultants said they would not dispute the prospect for Citicorp, Chase, or Morgan to emerge as investment banks, some observers argued that success would not necessarily be limited to those that have the scale to compete globally.
"Our success comes in being the single provider to middle-market, small- cap, and non-investment-grade companies here" in the United States, said G. Kennedy Thompson, co-head of First Union's capital markets group, a unit of First Union Corp., Charlotte, N.C. "I would disagree that there is only room for three commercial banks."
Scale has been a topic of considerable debate in the financial services industry.
Chase chairman and chief executive officer Walter V. Shipley is an outspoken proponent of the idea that scale in individual businesses is critical to success but overall size is not.
Mr. Shipley's opinion has been shared by Morgan's chairman, Douglas A. Warner 3d, who said in April that "bigness" is not a strategy in itself and not a goal of Morgan.
Consultants also said it would be dangerous to discount the prospects of the major European banks. "In this environment, anyone can buy anyone," said Charles Wendel, a consultant at Financial Institutions Consulting.
"Some of these names could be subsidiaries of a European or a Canadian bank in the future," Mr. Wendel said. "It's anyone's guess."
Kearney's Mr. Stack said banks that develop a specific niche will survive - just not as global investment banks. "There will always be a role for these types of firms," he said.
He added, however: "It will become increasingly difficult for niche banks to carve out and sustain their identities."
Other consultants noted that specialization-whether in a geographic region, an industry, or a market-would create more opportunities for smaller banks.
"A small number of the largest firms will have the majority of the business," Mr. Wendel said. "But the rest (of the business) may well be more profitable for those who go after it."