"trade anything"?? mmm...
Merrill, E*Trade, Others See Europe Online Soon and Lucrative
4/26/00 7:24:00 AM
Source: Bloomberg News
London, April 26 (Bloomberg) -- U.S. brokerages such as Merrill Lynch & Co. and E*Trade Group Inc. are spending millions of dollars to try to knit Europe's fragmented stock markets into an online trading community that will include the U.S.
''We're creating a hub where anybody can trade anything, anywhere, anytime, with any device,'' said Johan Brenner, managing director of E*Trade Europe, a unit of the world's third-biggest online brokerage.
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Brenner and others are betting on an explosion of online trading in Europe. Brokerages could triple the number of Internet accounts to 10 million in two years, analysts estimate. The expectation is it could reach U.S. levels, where online trades account for one of every six transactions.
For now, barriers abound in Europe where languages and regulations change with the borders, and investors are often less prone to take risks. Brokerages and banks entering the market probably won't make a profit for at least two years, said Stuart Liu, a banking analyst at ICEA Securities Ltd. in Hong Kong.
Those prospects aren't deterring some of the biggest names in retail investing -- Merrill, Charles Schwab Corp., E*Trade and Morgan Stanley Dean Witter & Co. At stake are billions of dollars in potential commissions, as the value of all stocks that trade in Europe is about two-thirds the $12.3 trillion of the New York Stock Exchange. There's also the opportunity to market other services online such as insurance and credit cards.
Merrill-HSBC
Merrill, the biggest U.S. brokerage, and HSBC Holdings Plc, Europe's most valuable bank, last week signed up for a $1 billion joint venture to offer online financial services that cater to the wealthy.
''You've got to go where the customers are,'' said James Gorman, marketing director at Merrill, and one of the executives responsible for the HSBC venture.
Fewer than 3 million customers have online brokerage accounts in all of Europe -- including about 1.1 million in Germany, 700,000 in the U.K., and 500,000 in France. By contrast, Schwab, the world's biggest online brokerage, has more than 3.8 million accounts, almost all of them in the U.S.
In Europe, there will be 30 million online accounts within 10 years, said Derek Brown, an analyst at BancBoston Robertson Stephens in London. Some estimates range as high as 50 million.
The growth in online accounts could well add to the number of people who own stock in Europe. For instance, only about 1 in 5 U.K. households and 1 in 20 German households own stock, Brown said. About half of U.S. households own stock.
The success on online trading will be ''driven by the health of the stock market,'' Brown said. ''People will open accounts if they perceive there is a rising equity market.''
Targeting Sweden
Schwab, the world's biggest online broker, is in the U.K. and Switzerland, and plans to expand further over the next year.
E*Trade said it's targeting Sweden where investors will be able to buy U.S. stocks electronically for the first time by the end of June. The Menlo Park, California-based company is starting in Sweden because two-thirds of the population owns stock, one of the highest percentages in the world, and 50 percent of the population has Internet access, Brenner said.
For all these companies, the idea is to offer trading 7 days a week, 24 hours a day on any exchange, said Stuart Graham, an internet brokerage analyst at J.P. Morgan in London. ''My gut feeling is that it's only one to two years out and it's probably closer to one year than two,'' he said.
To make their mark, U.S. brokerages will have to elbow aside entrenched regional banks.
In Germany, Comdirect Bank AG, Europe's biggest online brokerage, and ConSors Discount Broker AG already allow investors to buy U.S. shares. So far they've concentrated on local firms listed on the Neur Markt, the technology-dominated portion of Germany's stock market.
Local Competition
To gain an edge, outsiders will have to create electronic systems that allow investors to trade easily. Now, investors have to pay trading, membership and settlement costs for each national exchange and have to put aside collateral in each European market to cover their positions.
That's about to change. Tradepoint Financial Network Plc plans to start a pan-European stock exchange in July for institutional investors to trade 230 continental European stocks.
OM Gruppen AB of Sweden, the parent of the OM London and Stockholm financial exchanges, and Morgan Stanley are planning to spend as much as 100 million euros ($92 million) to develop Jiway, an electronic network, to trade 6,000 U.S. and European shares. The system for retail brokers is scheduled to open in September.
''What tends to happen in the states is replicated two to three years later in Europe, said Lynton Jones, Jiway's chairman.
Nasdaq-Europe and an alliance of national European exchanges have announced similar plans.
European online commissions are roughly twice as much as those in the U.S. Costs are higher because online brokers must accommodate securities regulations in each market.
In Germany, a 10,000 euro trade will cost 30 to 35 euros, compared with 17.4 euros in the U.S., J.P. Morgan's Graham said.
Consumer-protection laws are another reason why it costs more to trade in Europe. ''The Bank of England isn't going to protect a French guy who gets duped and loses his money,'' BancBoston's Brown said. |
