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Which brokerage is next?
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September 24, 1997: 2:27 p.m. ET
Trend of banks buying brokerages creates pressure on all sides
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NEW YORK (CNNfn) - The $9 billion acquisition of investment house Salomon Brothers by Travelers Group has Wall Street wondering which brokerage may be sold next.
The merger follows a trend of banks buying brokerages and investment houses. Last week, Fleet Financial Group announced it would buy Quick & Reilly Group Inc. for about $1.6 billion.
Other brokerages remain independent and may be targets of future buyouts. Those firms include Bankers Trust New York Corp. (BT), which was itself rumored earlier to be in a deal with Travelers.
Prudential Securities is another oft-mentioned sale item, as well as Merrill Lynch (MER), PaineWebber (PWJ) and Lehman Brothers (LEH).
The trend of banks looking to diversify their services with the addition of brokerages and investment houses may increase pressure on the remaining independent brokerages to find a buyer who can add some financial firepower.
"There are some increased risks for independent institutional brokers [that] are, in a sense, left behind and not picked up by a larger organization with larger capital," said Jake Newman, bond analyst at S&P Ratings Service.
Even those brokerages picked up by banks may face their own problems. While analysts were generally positive about the Travelers-Salomon deal, said Charles Earle, managing director at Gruntal & Co., such marriages are often difficult for both sides.
"There are big cultural differences. Banks [are] much slower-paced operations," explained Earle.
"[Brokerages'] success or failure on Wall Street depends on their ability to make decisions in a fairly short period of time that are good decisions."
Investors looking to get in on the action should focus less on trying to guess what brokerage will be bid up next and look instead at fundamentals, analysts said.
A brokerage's price-to-earnings ratio, which measures the stock's price by its earnings per share, is a good yardstick to use.
Of the pool of major brokerages left, those having the best ratios were PaineWebber (P/E: 12), Lehman Brothers (13) and Donaldson Lufkin & Jenrette (12). 
-- Randy Schultz
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