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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: Jim, once stock prices start to go up again and investors feel the wealth effect, will they forget about accounting scandals, special purpose entities and whether or not investment-banking decisions sometimes shape analyst recommendations?

Mr. Mitchell: That is a tough question. I am not sure, at least in the next couple of years, if those issues ever really go away. But in terms of whether retail investors come back to the market, it depends on how you define “come back.” On some level, I don’t think they ever really went away. I think individuals are still putting money into the markets, but the approach and mix is different. I think individual investors still believe in the long-term growth trends in the market, and I think they still believe in putting their money in 401(k)s and other similar products. But I think the appetite going forward is more for the advice channel, for putting money into diversified and professionally managed portfolios such as mutual funds and fixed income products — as opposed to individuals being stock pickers themselves. That is a meaningful shift from the past few years and a challenge for the retail brokerage industry. In response, a lot of firms are looking to move away from transaction pricing models toward a fee-based pricing model on asset levels. But that is a process that should take a while for the brokers to achieve. For instance, when you include margin lending in the mix, well over 50% of retail revenues are still driven off transactions. So I don’t think that people are going away from the market; they are just approaching it in a different and more balanced way, and seeking more advice. And I think there is a transition there that needs to occur. If the market picks up, I think people will start to eventually get more confident about picking stocks themselves. But I think it will be a slow process, and in the meantime revenue growth in retail will remain subdued.

TWST: Are there any that you have a buy on or a strong buy?

Mr. Mitchell: The top names that I like are Citigroup (NYSE:C) and Mellon Financial (NYSE:MEL), which actually could be categorized in the asset management space. And, as a leverage play (and this is a bit controversial), I do like J.P. Morgan Chase (NYSE:JPM).

TWST: Why would J.P. Morgan be considered a controversial play?

Mr. Mitchell: There’s certainly a lot of event risk with that stock. They’re big players in the syndicated credit market. I don’t think corporate bankruptcies are at an end, and I therefore believe credit costs will continue to rise. Earnings also have been negatively impacted by JPM’s venture capital portfolio. It’s quite sizable — the portfolio is close to 20% of the company’s equity base — and certainly still hurting. The company is also going through a large integration, which has had some people a little concerned. But in terms of the valuation, it trades at a significant discount to its historical valuation and to its peers. I think in a recovering economic environment, the company will get a bounce from credit, a bounce from venture capital, and a bounce from capital markets. Despite what some people would like to think, J.P. Morgan is a significant player in the capital markets business, among the top five in fixed income underwriting and M&A, although the company has room to improve market share on the equity side. So overall, I believe there’s some meaningful earnings leverage in that name. At the same time, the valuation hasn’t had the run up in anticipation of a recovery to the same extent that we have seen in some of the larger brokers.

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.