For Subscribers

Get the complete article now!

Four analysts and top management from twelve sector firms examine the brokers & asset managers sector in this special 57-page Brokers & Asset Managers issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info538.htm

TWST: Mark, what kind of improvement do you expect to see in equity underwriting in 2002?

Mr. Constant: In reference to our earlier discussion of the M&A environment, I think the precursor to improved underwriting activity is really a different form of confidence; it’s investor confidence. The question that’s frequently asked is, “What does the pipeline look like?” I generally take for granted the ability of investment bankers to find willing issuers, and believe that the real question is, “When will investors buy the deals?” In that sense, I think we have some early signs of a healthier underwriting environment, not just for IPOs, but for secondaries as well. Investors are back to a traditional analysis process, where they try to find the right price for the right company, instead of just trying to figure out how many times oversubscribed a deal is. I think those are healthy developments. This recovery process could very easily be interrupted, but if it continues to build momentum, it will be very favorable in the investment banks — not just because of resulting underwriting revenues, but also, as I mentioned earlier, because underwriting often drives substantial aftermarket trading revenues.

TWST: Just a few years ago, people were commenting about the quality of companies that came to market and a lot of IPOs that should never have been. Are those days going to be over?

Mr. Constant: We’re clearly in a new issue environment today that employs more healthy skepticism than we had two or three years ago, but you never want to dismiss the potential for tulip-mania to return. It sometimes happens more quickly than you’d otherwise expect. Nevertheless, I wouldn’t be counting on blind optimism to reemerge as a market psychology anytime soon.

TWST: Mark, what kinds of new products are the brokers and asset managers likely to introduce to help investors reach their goals, particularly with regard to retirement planning?

Mr. Constant: I think what Joan was alluding to a few moments ago was critical in understanding the evolution of the broker/financial advisor’s relationship over the last decade. In the aftermath of the 1987 crash, it was very, very difficult for the stock-jockey brokers that dominated the landscape to pick up the phone and make a call to a client who had just been slaughtered. To the extent that many brokers have truly become financial advisors in recent years, they now have a panoply of products (aside from just hot stock ideas in a bull market) to sell their customers. Perhaps the most important outcroppings of the recent tax law changes are the 529 plan enhancements. People are increasingly coming to appreciate that the real endgame of the growth of the defined contribution market is in fact IRA rollovers, not bundled 401(k) plans. You’ve also seen an evolution of managed products to now include separate accounts, wrap accounts and other vehicles, in addition to traditional mutual funds and permutations thereof. To me, these are all parts of a growing and evolving investment advisory services industry that encompasses a wide variety of products and offers opportunities for both advisors/intermediaries and underlying product managers.

TWST: Mark, do you share Joan’s enthusiasm for Goldman?

Mr. Constant: Goldman (NYSE:GS) would be second on my brokerage list. It probably has the greatest leverage to the favorable capital markets environment that Joan identified, but doesn’t necessarily have the transformational attributes that I think you can find in Merrill’s profitability story over the next two or three years. Nevertheless, it’s still going to do quite well, if we do in fact see the market rebound, as Joan envisions.

This special issue includes:

1) Brokers & Asset Managers - In an in-depth (12,000 words) Analyst Roundtable, Mark Constant, Senior Vice President/Senior Equity Research Analyst at Lehman Brothers, James F. Mitchell, Managing Director, Securities Brokerage & Banking at Putnam Lovell Securities Inc., Lauren A. Smith, Senior Vice President in the Research Department at Keefe, Bruyette & Woods, Inc., Joan Solotar, Managing Director at Credit Suisse First Boston Corporation, examine the outlook for the sector including outlook for IPOs, retail investors and share specific stock recommendations.

2) CEO interviews (average 2,500 words). Top management of twelve sector firms examine the outlook for their firm and the sector.