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Ganging up against the big boys

The recent mergers of CSFB with DLJ and JP Morgan with Chase signal a new desperation among those near bulge bracket firms to amass the scale, capital strength and full product capability they consider crucial if they are ever to gain entry to the very top ranks of global investment banking. In recent years, Wall Street firms have busily allied with retail distributors and acquired specialist boutique firms. But such full-blown mergers of large investment banks are something quite new. For these deals to succeed, profound misgivings will have to be overcome among many senior managers at DLJ and JP Morgan: firms that have traditionally stayed aloof from Wall Street alliances and have strong cultures. Although it's not clear these mergers will help firms leap ahead, it's quite certain the merging firms' rivals will take advantage of any discontent. Antony Currie reports

Here is a sobering thought for those involved in the present round of Wall Street mergers, something they should all consider carefully before congratulating themselves on getting ahead of the pack of middle-rank investment banks. Before they start believing the hype that the joint market share of their combined entities will catapult them to first, second or third place in any particular market, they should ponder how far ahead the leading Firms already are and how they got there.

There are three market leaders in investment banking at present, at least in the high-profile, big-fee world of underwriting and M&A: Goldman Sachs, Merrill Lynch and Morgan Stanley Dean Witter. Between them, in 1999, according to a report by UBS Warburg analyst Clare Nickson, they were involved in 79.4% of global M&A deals (announced and completed), and, as lead managers, controlled 28.4% of debt underwriting, 47.9% of IPOs and 43.6% of secondary equity offerings in the US (based on full credit to bookrunners and equal apportionment to joint leads).

And they have not achieved this by merging with other securities firms, although on the international front Merrill has been a prolific buyer of small local brokers and Morgan Stanley's purchase of Dean Witter gave it scale and added retail distribution.

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