ONLINE TRADING FIRMS PREPARE TO TAKE EUROPE BY STORM
Technology News
Wed, 08 Sep 1999, 6:07am EDT
Online Securities Brokers Prepare to Take Europe by Storm: Matthew
Lynn
By Matthew Lynn
(Matthew Lynn is a columnist for Bloomberg News. His
opinions don't necessarily reflect those of Bloomberg News.)
London, Sept. 8 (Bloomberg) -- Mark Barton is probably not
the sort of person that respectable companies such as Charles
Schwab Corp. or Donaldson, Lufkin & Jenrette Inc. would ever have
thought of using as a promotional representative.
But the 44-year-old Atlanta trader who killed his wife, two
children, and then nine other people in two separate brokerage
offices is still the only image the term, 'day-trader' summons
up for most Europeans.
That may be about to change. Last week, DLJ's Internet
brokerage unit, DLJdirect Inc., said it will offer online
securities trading in the U.K., challenging Schwab, the other
U.S.-based online broker operating in Britain. Not all online
traders are day-traders, of course -- but to many people the
difference is only a matter of intensity and risk.
Across Europe, a steady stream of Internet brokers are
crowding into a business that has the potential to transform the
way Europe's capital markets work. As Susan Noble, a strategy
analyst at J.P. Morgan & Co. in London, notes in the bank's new
review of the sector, 'The online brokerage industry is poised
to take Europe by storm.'
Although it is still in the early days, it now seems likely
that Europe will skip the U.S. model of developing strong retail
stockbrokers, who then move online -- and go straight to an
online model. In the next five years, it may well be online
brokerages that finally introduce an equity culture to Europe --
a development that would have huge implications for the
continent's financial services industry.
Growth Outlook
As little as two years ago, the Internet brokerage market in
Europe was just about non-existent. Less than 100,000 investors
were connected to a broker by a modem. Now, more than 900,000
people communicate with their brokers through a computer, and by
2002, J.P. Morgan predicts that more than 8 million people will
be trading online.
Unlike in the U.S., Internet trading is being sold in
European countries where there is very little popular
understanding of shares or stock markets. Most Europeans have
traditionally saved in cash, or through pooled investments. Few
have ever bought shares directly from a broker.
Sweden and Denmark have relatively developed markets in
stock ownership -- 53 percent of Swedes own shares directly, and
33 percent of Danes. The British, also, are relatively keen
investors, with 25 percent owning some shares directly. But
elsewhere, the figures are very low. Just 4 percent of Austrians,
for example, own shares, and fewer than 6 percent of Dutch and
Belgians do.
The German Experience
Those kinds of numbers don't make promising reading for
Internet brokers -- after all there would seem little point in
selling something people don't want whether it is on line or off
line.
But Internet trading appears to be creating an appetite for
investing where none previously existed. Germany, for example,
has very low levels of share ownership -- just 7 percent of the
population. But that has not stopped it from becoming one of the
most active markets in online share dealing. Already there are
around 400,000 people dealing online in Germany, the highest
number of any European market, and that is forecast to more than
double by next year. By 2002, almost three million Germans should
be dealing through their computers -- creating for the first time
an army of small shareholders in Germany.
Creating New Demand
The same is true in France. Only 10 percent of the French
own shares directly, and of those, most have tiny portfolios. But
it is now one of the fastest growing markets for online trading.
The U.K., although advanced in terms of share ownership, has been
slow to develop Internet trading. And it has allowed U.S.
brokerages to take the lead. Schwab is now the fourth-largest
online broker in Europe largely as a result of its leading
position in Britain -- while among the British banks, only
Barclays Plc has any significant presence in the market.
In countries where there has been a limited appetite for
equities, online brokers seem to be creating a new demand. That
may be because buying shares had traditionally been costly and
difficult. Make it cheap and easy, and the customers will emerge.
One consequence of an upsurge in Internet trading in Europe
will be a changed landscape for the traditional brokers and
bankers. Low-cost, online trading turned Schwab into one of the
most powerful brokers in the U.S. -- drawing power away from the
traditional barons of Wall Street.
The same may happen in Europe. The biggest online broker in
Europe now is Commerzbank AG's Comdirect GmbH unit. It's nearest
rival is ConSors Discount-Broker AG, a unit of Schmidtbank KGaA.
Neither Commerzbank nor Schmidtbank are great powers in the
European securities industry, but if they can take the leading
position in the online market, then they will become so.
Staking Out Territory
In France, it is Paribas SA that has taken a decisive lead
through its Cortal unit. As that bank becomes a part of Banque
Nationale de Paris SA, that new combination will become an even
more dominant player in Europe.
The ability to stake out territory in the fast growing
online market may be just as important as the current round of
mergers in determining the shape of the European financial
industry.
But just as important will be the attitude of the new
shareholders created by the emerging ranks of online brokers.
When buying shares was difficult in Europe, they were mostly
bought by professionals -- banks, fund managers and insurance
companies. That is one reason why most of Europe's big companies
are owned by big financial institutions. Small shareholders are
usually treated badly because they don't matter very much.
In the economy being created by Comdirect, ConSors, Schwab,
and now, DLJdirect, all that will change. Already, the Internet
investors in Europe have shown themselves as aggressively short-
termist and volatile as any of America's day-traders -- in
France, for example, account holders with online brokers are
trading at a much higher rate than their counterparts in the U.S. |
