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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: John J H Kim who wrote (15122)	6/3/1999 10:20:00 AM
From: Susan Saline	Read Replies (1) \| Respond to of 43080

in a lil MER here at 70 1/4 Wednesday June 2, 7:21 pm Eastern Time Merrill's online move spurs Wall Street to action By Mary Kelleher NEW YORK, June 2 (Reuters) - Merrill Lynch and Co. Inc.'s (NYSE:MER - news) push into online trading will spur rival Wall Street firms to scrape together plans to let clients buy stocks online, while raising concerns about profits. Wall Street's full-service brokers long opposed online trading for fear it would eat into commissions. But as the largest U.S. broker swallows its pride to offer cyber-trading, other brokers will fall into step like dominoes, analysts say. Margins might narrow and revenues could dip in the process, some analysts say, but Wall Street appears to have little choice but to embrace the Internet given the awe-inspiring growth of online discount brokers like Charles Schwab Corp. (NYSE:SCH - news). ''As a result of Merrill Lynch's announcement of its Internet strategy, we believe that the Internet strategy of other brokers will be accelerated,'' said Steven Eisman, an analyst at CIBC World Markets who lowered his recommendation on several brokers after Merrill's announcement. ''We are unsure as to the impact on earnings but we expect margin compression to occur across the industry,'' Eisman said. The worry on Wall Street is that broker commissions, a chunk of which go to the firm, will dwindle as customers race online and profits could be hurt. Other full-service and online brokers might also be forced to cut prices to compete as the cost of trading securities tumbles. Plus, there are sizeable technology and marketing costs attached to forging an Internet strategy, while also preparing computers for the coming millennium and for the possibility that U.S. stock exchanges soon might stay open longer. Merrill took out a three-page ad in the New York Times business section on Wednesday to advertise its new plan. ''This puts pressure on other firms in the sense that Merrill has the largest retail distribution out there and it has now declared it is necessary to compete in the online world,'' said Joan Solotar, an analyst at Donaldson Lufkin & Jenrette. ''This sends a clear message to every retail brokerage firm that they need to formulate a strategy quickly ... But they are already in progress. It's just a matter of when the announcements start coming,'' Solotar said. It could be dangerous to be left behind as Merrill opens its doors to cyber investors, analysts said. If others don't follow Merrill's steps quickly, Merrill could win customers with help from its powerful brand name. ''This definitely puts pressure on the other firms,'' said Richard Strauss, an analyst at Goldman Sachs. ''This should become the industry standard. If it doesn't, Merrill could win lots of customers from other full-service firms.'' Salomon Smith Barney, the securities arm of financial services company Citigroup (NYSE:C - news), recently said it would offer Internet trading later this year, reversing a previous policy of limiting clients' Internet access to research and portfolio checking. Morgan Stanley also has an online brokerage unit that is exploring after-hours trading. Donaldson Lufkin & Jenrette (NYSE:DLJ - news) recently sold a stake in its online broker DLJDirect (NYSE:DIR - news) to the public. Amid a period of uncertainty, it will depend on how successful the brokerage firms are in using online strategies to lure new clients and assets to drive higher trading volumes while cutting costs, analysts said. ''This is clearly a bold move by Merrill Lynch,'' said Henry McVeigh, an analyst at Morgan Stanley Dean Witter. ''I think in the end the firms that get the flow, the customer assets and the customer relationships will be able to offset some of the margin pressure.'' But CIBC's Eisman lowered his earnings estimate for 2000 on Merrill to $5.00 a share from $5.70, cut his 2000 earnings guidance on Morgan Stanley Dean Witter (NYSE:MWD - news) to $6.40 a share from $7.00 and his 2000 estimate on PaineWebber Group Inc. (NYSE:PWJ - news) to $3.45 a share from $4.00. The stock market, which is also worried about the possibility of higher interest rates, echoed his concerns and knocked back financial stocks on Wednesday. Merrill shares, pounded on Tuesday, dropped another $4.56 to $70.44 while Morgan Stanley stock fell $3.50 to $88.25.