Buysiders Still Struggling With Street Mega-Mergers
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Buysiders Still Struggling With Street Mega-Mergers

Buysiders say they are still feeling the effects from the consolidation on the sell-side, such as the recent mega-mergers of Donaldson, Lufkin & Jenrette with Credit Suisse First Boston and Chase Securities with J.P. Morgan, on accessibility to market information and liquidity. They have lost leverage with the sellside as a direct result of consolidations, says Mike Dineen, portfolio manager at the MONY Group in New York, and liquidity has also been effected. "I used to have more control over which firm I could reward, depending on who gave me better service. Now they are all just the same sellside," says Dineen. "It's almost like they've become commoditized," says another buysider.

Information on the status of new deals is becoming scarce for the buyside because small broker dealers with whom they have relationships are no longer lead-managing new issue deals as the merged firms outbid them. "Co-managers are completely left out of the loop now," says Dineen, adding that MONY used to be a target account before the consolidations. "They can't give me any market guidance now on how the deal is going because they have no access to the books."

There is also little incentive for co-managers to work on the new issue deal because they don't get paid enough, says Bruce Alston, portfolio manager at Value Line Asset Management in New York. "Why should they do any work when they're only getting 10% of the profits and the lead is getting 90%? Let the other guy do the work," he says. "Because they don't do as much, they are further out of the loop."

The secondary market has also changed, as the merged firms concentrate on underwriting new issues, leaving the secondary market largely to the smaller broker/dealers. "Shops that are mostly involved in the secondary market are having a really tough time because there is less flow," says Dineen. "I think the Street is a lot less interested in secondary trading now, and they spend a lot more time managing the mega firms rather than the mid-tier managers like us," says Andy Palmer, portfolio manager for ASB Asset Management in Washington, D.C. Eric Miesenheimer, portfolio manager at Northern Trust Asset Management in Chicago, also feels like the sell-side sentiment "is becoming more and more 'what have you done for me lately?"

Although "the consolidations aren't causing much of a liquidity problem yet," says Greg Habeeb, portfolio manager at Calvert Asset Management Group in Bethesda, Md., "there will be an issue if one or two more big ones take place." In order to stop the smaller firms from being squeezed into a merger, Habeeb is trying to give them as much of his business as possible. "It is to my advantage to do this," he says, "I try to do my part giving them business, using them as much as I can. Sometimes the smaller firms have the best bids." Neither CSFB nor JP Morgan returned calls, by press time.

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