Every equities broker selling into the US can prove that it's top of one league table or another. But which is the league that matters? ABN Amro, Dresdner Kleinwort Benson, Warburg Dillon Read, Goldman Sachs, Morgan Stanley and Merrill Lynch all claim top spots on coverage and business volume. Extend the surveys into research and star-rated analysts and others come into the frame.
But league tables don't often give the whole picture. The McLagan survey compiles its rankings by listing commission volumes - a good indicator - yet the more sensitive funds refuse to reveal how much they pay and these include some of the largest such as Capital, Janus, Tiger and American Century.
The league tables anyway will be turned on their head by the European single currency. Firms may also have to adjust to a slowdown in the US economy and an increasingly demanding investor base. Given these new factors, which houses can keep their place at the top of the league? "The three big US banks - Merrill, Morgan Stanley and Goldman Sachs - and Warburg are pretty much assured a place," says one European broker. The rest will be fighting hard to come near them.
"In essence broking is not a tough business," says Nick O'Donohoe, managing director and head of European equity sales at JP Morgan. "It's a question of having good people doing the straightforward things well: in-depth research; analysts regularly calling and visiting investors; providing investors with access to corporate management; good execution; and providing investors with capital where necessary."
Unfortunately, as O'Donahoe and other bankers admit, success is not as easy as it sounds. There is a glut of banks trying to offer similar services, making it more difficult to make initial contact with the investors. "I get too many calls from brokers as it is," says Harry Hartford, co-manager of the $4 billion international portfolio at Hotchkis & Wiley, the west-coast asset-management business bought by Merrill Lynch in November 1996. "I'm usually swamped with information and research, and calls from brokers. For me, voicemail is the best invention yet, and even the e-mail system is getting clogged up. I receive up to 30 a day." Some fund managers limit the length of callers' messages. David Herrow at Chicago-based Harris Associates asks politely that they leave a message of no more than 25 seconds.
A few big fish
All the equity salesmen are fighting over a concentrated investor base: the 40 largest asset managers accounted for roughly 90% of the business last year, with much of the remaining 10% going to the next 60 funds. According to some calculations, the five largest investors had a one-third market share.
And these big investors are not necessarily biased in favour of US houses. Hartford at Hotchkis & Wiley is Irish, and other Europeans run the international portfolios at several other major firms.
The European houses generally offer greater depth in research, especially on companies in their domestic markets - they arguably have better contacts with senior management. But very few have a foothold in all the major markets. This is becoming more of a problem as sector-based investing takes precedence over country-based investing. US investors are finding that this is causing some European brokers to take their eyes off the ball.
Says Drew Collins, manager of Federated Global Investors' (FGI's) international equity fund: "Those who once covered France or Italy, for example, are now having to cover such things as airlines, financial services or engineering, and are so new to it that they can't always offer the best research." Société Générale - now rebranded as SG - is in the middle of such a change. It has always vied with Paribas for top spot in selling French equity products but has concluded that this strategy will win only limited crossover business.
"We're taking the areas which Cowen & Co [the US broker that SG bought this year] specializes in and developing them into global businesses," says Dominic Freud, managing director in SG Cowen's New York office. "Its strengths lie in growth-stock sectors, such as technology, health care, media and telecoms. But we're also developing utilities and transport as sectors which we see as important, and there will be others going forward." Is this easy? "No," says Freud. "Our reputation is as a French specialist, and we're having to go up against the well-established major firms in these sectors. But we have good people and a well-capitalized parent."
Commerzbank had no presence outside German equities until Mehmet Dalman was hired last year from Deutsche Bank to build up a global team. The head of sales in New York is Michael Lewis, an Englishman who has worked in New York since 1983 for Warburg in its various incarnations, and started at Commerzbank in August. "We're concentrating on areas where we have strong analysts and corporate relationships," says Lewis. "There are also other areas to be explored such as those companies with smaller market capitalizations, say of between $200 million and $700 million, which many of the big houses don't touch."
Lewis undoubtedly has the experience and the contacts, but a new entrant still building up systems and relationships - with both the buy and the sell side - will find it difficult to win business - especially profitable business.
Warburg Dillon Read is exceptional among the European houses. It has a foothold in the major European markets, and covers over 1,500 companies. But ABN Amro is in hot pursuit. Earlier this year it started reorganizing the local brokers which it has acquired around the world into one unit - not without some teething troubles, as the senior defections from Alfred Berg earlier in the summer show. And Dresdner Kleinwort Benson has also been expanding its presence in other European markets.
One market's not enough
"BZW and NatWest Markets pulling out of equities last year was proof that you can't survive on the back of just one European market," says Alan Yarrow, head of global equities at Dresdner, which has two home markets, Germany and the UK. "We're basing our strategy on building up our European presence in the undercapitalized markets, which is one of the reasons why we bought a 67% stake in Albertini [an Italian brokerage with a 5% market share]."