Wave of Bank Mergers Hits Securities Dealers
Blake, Dan, THE JOURNAL RECORD
NEW YORK _ Slim profits have dwindled the number of securities dealers that trade directly with the Federal Reserve and a new wave of bank mergers stands to erode further the number of primary dealers.
Chemical Banking Corp. and Manufacturers Hanover Corp. each operate a primary dealership, but once they merge they would likely eliminate one of the dealerships to cut costs.
That would decrease the select group to 39 primary dealers from a high of 46 in 1988. In 1990 alone, the number of primary dealers dropped by five.
About a fourth of the primary dealers are subsidiaries of domestic banks. Analysts say the U.S. banking industry is headed for a new wave of consolidation as banks look to lower overhead while boosting capital and market share.
Primary dealers buy Treasury securities directly from the Fed and make their money by selling the bills, notes and bonds.
But intense competition has narrowed profit margins. Also, Fed requirements that primary dealers maintain a minimum daily trading volume in Treasuries takes capital away from potentially more lucrative investments.
Many firms have decided it is no longer worth the prestige that accompanies primary dealer status.
Westpac Pollock Government Securities Inc. surrendered its primary dealer designation last year after its parent company, Westpac Banking Corp. of Sydney, Australia, couldn't find a buyer for the dealership.
The company said the long-term outlook for the profitablity of primary dealerships scared away potential buyers and prompted the firm to get out of the business.
"For certain firms it's an advantage. …