[B] Hi-Tech: ETrade moves into banking, following other brokerages
By Melissa Wahl, Chicago Tribune
Banks have plenty to worry about these days: rising interest rates,
regulators squawking about deteriorating loan quality and the stigma on Wall
Street of being in a slow-growth industry.
But those concerns may end up being minor compared with the latest threat on
the horizon--brokerages offering bank services.
For more than 15 years, brokerages have been winning assets away from banks,
with consumers taking money out of bank accounts to invest in the stock market,
often via mutual funds.
Now brokerages are moving after a piece of the traditional banking market
too.
On Tuesday, ETrade Group Inc., the nation's second-largest online brokerage,
launched an online bank that offers FDIC-insured checking and savings accounts,
among other bank products.
The debut of ETrade Bank comes on the heels of a string of deals bringing
brokerages into banking. Less than 3 months ago, Charles Schwab Corp., the
country's largest discount and online brokerage, announced plans to acquire U.S.
Trust Corp., a bank that caters to wealthy people, for $2.7 billion in stock.
Already, dozens of brokerages are offering banklike products such as
money-market accounts that come with checks and, sometimes, ATM access.
A smaller number have received bank charters, which allow them to secure
FDIC insurance and offer bona-fide banking products rather than simply mimicking
banking products. All of them, including ETrade, give customers consolidated
brokerage and banking account statements and allow them to quickly transfer
funds between accounts.
Banks have been fighting back, mainly by acquiring brokerages. Bank of
America Corp. owns Montgomery Securities; U.S. Bancorp has Piper Jaffray Cos.,
and First Union Corp. last year acquired Chicago-based Everen Capital Corp.
Banks are acquiring brokerages to gain back customers and, in many cases, to
get the investment banking expertise that comes with them. Both those businesses
tend to have higher returns than traditional banking.
Brokerages, meanwhile are not entering the banking market with dreams of
huge profits, but they want to fortify customer loyalty by becoming
one-stop-shops for banking and investment services.
"I'm not looking for banking to create huge profit windfalls," said Greg
Smith, an analyst who follows brokerages for Chase H&Q in San Francisco. "It's a
convenience and a way to keep assets at the firm."
The competition and merging of banks and brokerage firms is part of a
greater financial industry evolution. It includes the melding of
financial industries--banking, investment banking and insurance--and became
easier last year with the passage of new federal rules that tear down barriers
among the industries.
It is too early to know which mix of businesses, or which business models,
will be successful, said Bert Ely, a bank consultant in the Washington, D.C.,
area.
"Basically, these companies are becoming diversified financial firms that
can cross-sell and service customers in lots of different ways," Ely said.
"You can't draw generalizations yet" about who will win, he said.
Banks have the money to enter other financial businesses--either from
scratch or through acquisitions--but brokerages are more successful at
attracting new customers and offering cutting-edge products, experts say.
"Banks are big bureaucracies," said Steve Eisman, a financial services
analyst at CIBC World Markets in New York. "Brokerages are much more nimble."
End
Apr-06-2000 14:03 GMT
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