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Non-Tech : E*Trade (NYSE:ET) -- Ignore unavailable to you. Want to Upgrade?

To: tcd who wrote (7778)	7/25/1999 6:47:00 PM
From: Srinivasan Balasubramanian	Read Replies (1) \| Respond to of 13953

Fortune also did a story on Investment Banking and how the internet might alter it for good. I an unable to provide a link but here are some points I could make from it, The traditional investment banking (equity and debt underwriting, and the "capital markets" selling the underwritten IPO's to the favored institutions) has been the most lucrative for the investment banks. Infact, the underwriting fees are the highest (around 7% for deals < 100 mln) in the US compared to else where in world. The prices of IPO's are fixed by the investment banks and not by the client companies. So there is a conflict of interest here - the favored institutional clients get in at firesale prices but the company gets ripped off as lot of money is left on the table. These institutional clients often flip the shares they receive on the very first day for terrific returns. The investment banks expect these institutional clients to return the favor by routing their trades through them. So the investment banks tend to offer very little for internet distribution as they don't get anything out of it. But since the demand often exceeds supply most of the institutions don't get enough shares to justify the exorbitant trade fees they pay to these investment banks and now lot of them realizing it is better to trade thro' ECN's where the trade fees are lows as 2c per share compared to 5c a share they are paying now. Also systems like the dutch auction and firms like Schwab and EOffering may provide more efficient alternatives (in terms of underwriting fees) by lead managing the issues and providing greater internet distribution. In summary, it says the internet will change the face of investment banking. Srini