Big banks interested in buying Wall Street firms may have to move quickly as a result of Wednesday's megamerger.
The pairing of Dean Witter, Discover & Co. and Morgan Stanley Group could well prove to be the opening shot in a swift round of mergers on Wall Street, investment bankers and others said Wednesday.
"If this leads to a rapid consolidation of the investment banking industry, it is not impossible that it will leave the banks behind in terms of getting into this business," said Gerard Smith, a managing director in the financial institutions group at Union Bank of Switzerland.
Chase Manhattan Corp., NationsBank Corp., and other large banks, encouraged by a gradual easing of regulations, have been considering buying securities firms or starting their own. The number of available targets may soon dwindle, however, and start-ups could be hard-pressed to compete with the emerging breed of giants.
"The barriers to entry for the 'build' strategy are very high today and are about to become insurmountably high," Mr. Smith said.
The latest deal, coming on the heels of a joint venture between Salomon Brothers Inc. and Fidelity Investments, also could encourage Congress to pick up the pace of financial "modernization."
"Unfortunately, the markets have been very much ahead of Congress," said Rep. Richard H. Baker, R-La.
"This demonstrates the point that there are constant changes going on, and the static nature of our laws, rooted in the 1930s, becomes anachronistic in the 21st century marketplace," said Senate Banking Committee member Robert F. Bennett, R-Utah.
A number of Wall Street firms are considered clear acquisition candidates. Donaldson, Lufkin & Jenrette Inc., Bear, Stearns & Co., Lehman Brothers Inc., and PaineWebber Inc. could all become targets of commercial or investment banks, experts said.
Indeed, the stock prices of all but PaineWebber shot up Wednesday, despite a selloff late in the day. DLJ gained 87.5 cents, to $38.50; Bear Stearns, 50 cents, to $32.375; and Lehman Brothers, 62.5 cents, to $32.125. PaineWebber was down $3, to $35.875, in large part because the stock had run up on rumors that it was in talks with Morgan Stanley.
The most likely acquirers among banking companies are NationsBank, Chase, J.P. Morgan & Co., and Bankers Trust New York Corp., market sources said.
For Chase and NationsBank, acquisitions of investment banking firms could supply the scale that is increasingly important for competing in capital markets businesses, observers said.
J.P. Morgan and Bankers Trust, on the other hand, may be more interested in acquiring retail securities businesses in order to keep making headway against the likes of Merrill Lynch & Co. and the new Morgan Stanley.
"J.P. Morgan has long intended, and has become, a rival to Morgan Stanley," said an investment banker. "And now Morgan Stanley has something here to really distance themselves."
Commercial bankers are sure to study the new giant closely as the merger is carried out.
"I'm trying to build a capital markets business," said one banker. "This development says to me that maybe I should build this thing in an integrated fashion."
The banker said that commercial banks already have the strong retail presence Morgan Stanley was seeking.
"Everyone's got some missing key pieces here," said the banker.