Deal May Spark Bank-Brokerage Merger Boom Bankers Trust Acquisition Of Alex. Brown & Son’s Is Biggest So Far Under New Rules

Bankers Trust’s plans to buy Alex. Brown & Sons Inc. brokerage spurred a buying flurry in the shares of regional brokerage stocks on Monday, as investors bet that similar deals will follow.

The merger is the biggest so far to take advantage of regulators eased restrictions on banks getting into the stock brokerage business. Many analysts have been predicting that U.S. banks would start branching deeper into the securities business and some expect big U.S. brokerages could be targeted by big European banks.

“This is really the tip of the iceberg,” said Frank Barkocy, a banking analyst at Josephthal, Lyon & Ross, Inc. “I’d be surprised if we didn’t see other combinations taking place over the coming months.”

But still others wonder whether the latest deal will put much pressure on other banks to find a brokerage partner. While Bankers Trust is classified as a commercial bank, it has no branch network and is already more like a Wall Street firm. Its clients are exclusively corporations and typically seek investment banking expertise.

Since they don’t directly compete with Bankers Trust on all fronts, big consumer banks like Chase Manhattan or Citicorp might not feel a pressing need to gobble up a brokerage.

Bankers Trust and Alex. Brown, the companies said, fit well together because they both have long lists of corporate clients and would now be able to offer them a broader range of services.

Bankers Trust Chairman Frank Newman doubted that many other potential bank-brokerage deals would be able to find the same complementary fit.

Pending regulatory approval, Bankers Trust will acquire Alex. Brown, the oldest brokerage firm in the country, in a stock merger valued at $1.65 billion.

Bankers Trust will exchange 0.83 of a share of its stock for each Alex. Brown share, making the deal worth $66.40 per share to Alex. Brown shareholders, who will end up with a stake of about 20 percent in Bankers Trust.

The move is the most dramatic result to date of banking regulators’ gradual steps to allow banks to do more stock-underwriting and trading.

Congress has been debating the repeal of the 1933 Glass-Steagall Act, which prohibits banks from underwriting stocks. Enacted in the aftermath of the 1929 stock-market crash that led to the Great Depression, the bill was aimed at preventing banks from taking fatal risks in the stock market.

But banking regulators, impatient with Congress’s slow movement on the issue and bolstered by recent court rulings, have moved ahead of lawmakers to allow commercial banks perform almost all of the functions of stock brokers.

Last year, regulators allowed banks to derive 25 percent of their revenue from securities businesses, up from a previous cap of 10 percent, if they do it through a separate subsidiary.

The combined Bankers Trust-Alex. Brown would derive about 20 percent of its revenues from stock underwriting.