Broker-dealer executives whose firms clear trades through and use the custody services of Bear Stearns Securities Corp. say that their fears have been calmed for the moment by the deal under which JPMorgan Chase & Co. will acquire parent company The Bear Stearns Cos. Inc.
In the wake of the historic collapse last month of Bear Stearns, JPMorgan Chase agreed to buy the distressed investment bank and regards the clearing business as one of Bear Stearns' most attractive assets. Both Bear Stearns and JPMorgan Chase are based in New York.
The deal will cost JPMorgan about $9 billion in stock, transaction-related costs and potential losses from Bear's portfolio.
Bear Stearns, ranked as the fifth-largest investment bank, collapsed in mid-March as large losses related to subprime-mortgage losses and falling confidence in the company caused clients to flee the bank.
One rival already sees an opportunity to land some of Bear Stearns' clients.
"We're hitting the ground running," said Richard Brueckner, chief executive of Jersey City, N.J.-based Pershing LLC, which is a unit of The Bank of New York Mellon Corp. In fact, Pershing has added "several dozen" clients over the past few weeks, he said, adding that he wouldn't directly comment about Bear Stearns.
An increasing number of broker-dealers in recent years have started to offer a variety of clearing platforms for their representatives and financial advisers, meaning that many that use Bear Stearns also offer the clearing platforms of Pershing and National Financial Services LLC of Boston, among others.
First Allied Securities Inc. of San Diego, for example, clears through Bear Stearns, Pershing and San Francisco-based
Wells Fargo & Co., a past owner of the firm, which has made "no decision to drop Bear Stearns and is taking a wait-and-see approach," said Adam Antoniades, First Allied's chief executive.
'STICKING WITH BEAR'
"What the market is waiting to see is how committed JPMorgan is to the clearing business," he said.
Robert Gordon, president of New York's Twenty-First Securities Corp., said his firm is "sticking with Bear" for the moment, but it "might move" if JPMorgan required some big changes such as repapering accounts.
"JPMorgan is an acceptable name and counterparty" to trades, he said. "As long as the deal goes through, for us it may turn out to be fine."
Lon Dolber, chief executive of American Portfolios Financial Services Inc. of Holbrook, N.Y., said that "it was business as usual" working with Bear Stearns. "The only difference is that the brokers have a little more explaining to do," he said.
Brokerage executives noted, however, that the clearing platform that Bear Stearns created was less geared toward mainstream retail firms than some of its competitors.
In last year's
InvestmentNews survey of broker-dealers, just four of the top 50 independent-contractor broker-dealers said they cleared trades through Bear Stearns. An overwhelming number use Pershing or NFS.
But Bear Stearns is still a sizeable player in the market. It is the third-largest clearing firm when ranked by the number of broker-dealer clients, according to last year's
InvestmentNews survey of clearing firms.
Bear Stearns' broker-dealer services had 275 broker-dealer clients, according to the survey, lagging behind only Pershing and NFS, which had 870 and 344 broker-dealer clients, respectively.
The clearing industry has seen incredible
consolidation over the past 10 years. According to a recent report in Registered Rep magazine, there were about 130 firms that performed custody and clearing functions for broker-dealers 10 years ago, and there are now about 25.
Meanwhile, Pershing's new accounts come from a variety of areas in the business, Mr. Brueckner said. Those include registered investment advisers, prime brokers and correspondent or introducing broker-dealers with retail reps, he said.
Joe Triarsi, senior managing director of Bear Stearns' clearing unit, did not return a call seeking comment.
Many broker-dealers. meanwhile, are contacting NFS about clearing services, including those who work with Bear Stearns, said spokesman Steve Austin.
E-mail Bruce Kelly at [email protected].
