Shearson, Bache, Dean Witter play new tunes - slowly
Boston — A certain Wall Street trio is still playing andante.m In music, that's often the slower movement that preceeds the faster one. When the brokerage trio - Shearson, Bache, and Dean Witter - joined hands with new owners during 1981, it was thought the new owners - American Express, Prudential Insurance, and Sears, Roebuck & Co. - would add a lot of zip to their brokerage aquisitions.
Terms like ''financial supermarkets'' and ''cross marketing'' were frequently heard. People talked about insurance agents selling mutual funds, brokers selling insurance, parents outfitting the kids at Sears and then, oh yes, investing in a few stocks on the way out the store.
But some of the analysts who follow the securities industry say these concepts haven't yet become reality. ''Eventually, everyone hopes to cross sell to everyone else's customers, but this takes a great deal of cooperation, a great deal of understanding,'' says Perrin Long, an analyst with Lipper Analytical Distributors Inc. in New York. ''To date,'' he adds, ''there hasn't been a great deal of this.''
Joseph Spivack, who follows the securities industry at Value Line Investors Service, agrees. ''In terms of cross marketing, it's not something that can happen in one year.''
And though the bull market produced a good year of profits and capital for brokerage firms in general last year, these three brokerage firms didn't get any tremendous boost just because of their new owners, Long states. ''The mergers haven't contributed anything to the better results that these firms have shown.''
The mergers may not be whipping change through the corridors of these brokerages. But that doesn't mean the Wall Street trio has stood still all year, either.
At Prudential-Bache Securities Inc. - the new name for the firm since the acquisition - Alan Altschuler notes that ''we've clearly done well because of the bull market.'' The senior vice-president of Pru-Bache says its parent, Prudential Insurance Co., may not yet have brought a slew of new customers to his firm, but ''it has added a basic feeling of stability and confidence to the firm and its clients.'' That confidence has also been radiating from Pru-Bache's new chief executive officer, George Ball, who has been aggressively restructuring the firm.
Since the merger, Prudential-Bache has been working on some new products - many managed by Prudential Insurance. Shortly after the merger, the company offered a utility fund with tax advantages which Prudential Insurance managed. A month ago, it came out with an options growth fund, which combines the purchase of stocks plus stock options. The parent company manages that one too. And Pru-Bache is in the process of registering a zero coupon bond that is backed by mortgages held by Prudential Insurance. Finally, adds Altschuler, Pru has also taken over management of most of the Pru-Bache mutual funds.
The only new product that has really gotten off the ground so far is the tax managed utility fund. ''That sold $100 million and we only expected to sell $60 million,'' Altschuler says. ''But all the pilot programs are much too early to tell.''
Cross-selling is also just getting started. About a third of the Pru Insurance agents are qualified to sell Pru-Bache mutual funds now, Altschuler says. But Pru-Bache is not going to start selling insurance. ''That's not an area where we expect a lot of synergy,'' he says.
''At this point,'' Altschuler concludes, ''both firms still do what they've done in the past.''
While George Ball has set some sparks flying at Pru-Bache, Dean Witter and Sears started their relationship much more quietly.
One of the first big experiments was to try and sell Dean Witter Individual Retirement Accounts (IRAs) through inserts in Sears credit card statements. ''The response was on the low side of expectations,'' says Carl Hulick, senior vice-president of Dean Witter.
This disappointment industry observers to doubt Dean Witter would succeed in mass marketing financial services to Sears' retail customers.
But Dean Witter sent out a second insert - this time not trying to sell IRAs directly, but just trying to get people interested in them. ''We've gotten up toward the high side of expectations this time,'' Hulick said. ''We made the offer too complicated the first time.''
Dean Witter is a part of a unique move by Sears to establish a financial network within Sears stores. The network includes the real estate firm Coldwell Banker & Co., Allstate Insurance Co., and Dean Witter Reynolds Inc., all subsidiaries of Sears. In December, Dean Witter started marketing a money market account with Allstate providing the insurance for the account. ''It's been very popular,'' Hulick says. Other new products are in the works.
While the new product offerings and efforts to get more customers through credit card mailings have not produced results to crow about, the success of Dean Witter service centers inside Sears stores has.
The 15 financial service centers that it has been running at Sears locations are opening accounts at three to four times the rate experienced in the Dean Witter branch offices, Hulick says. And these Sears clients are bringing in comprable capital. Perrin Long, at Lipper, calls these centers ''the one thing they have had success with. It has generated a lot of new customers.'' The plan is to have over 100 such centers open by the end of the year.
The innitial success of the first 15 centers adds legitimacy to Hulick's conviction that the Sears client is a perfect client for Dean Witter. ''Sears markets to households . . . As households go through transitions, certain things will occur: households will inherit money, they will need to pass assets on, they may need to roll over pension plans, they may get a big bonus.''
The one thing Sears brought to the table that another company would have trouble matching is its huge customer base, Hulick says. Sears can ''expose our information system to a far larger part of the population than we would have been able to do - particularly in areas like the Midwest where we aren't strong, and accross the sunbelt.''Val
''The upscale market is attractive, but the middle market is too big to be ignored,'' says Mr. Spivack at Value Line.
Of the three acquisitions, though, no merger has produced more synergy than the Shearson's acquisition of American Express, analysts say. Shearson/American Express Inc., the new name of the brokerage, has put American Express capital to good use. The two firms have swaped some executives, turning the word ''teamwork'' into more than a chest-thumping slogan.
''This merger was probably the most supportive jointly, because Amex was a multi-financial organization to begin with,'' Perrin Long states.
''Shearson has manged the best,'' says Value Line's Spivack. ''They have made good use of Amex capital. Shearson has made four significant acquisitions over (1981-82), and would have made less had they not been acquired,'' he says. The acquistions were of an investment management firm, two brokerages, and a real estate investment management company.
Commenting on the two brokerages, Mr. Long calls them ''a good idea, though Shearson has run into some difficulties with them.'' He pointed out that when Shearson/Amex picked up Foster & Marshall, a Seattle brokerage house, a number of sales people left Foster. ''Desired results at Foster for 1982 weren't up to expectations,'' Long said, ''but Robinson and Humphrey (the other acquired brokerage) had a very good year.'' Becuase of the acquisitions and a bull market , Shearson/Amex finished 1982 with $837 million in capital, compared to $538 million in 1981.
Analysts also nod approvingly at changes in management. Shearson's former president and chief executive officer, Sanford Weill, has a new position as president of Amex. Shortly after the merger, Shearson's chief financial officer slid over to Amex. And another Shearson executive, Alger Chapman, now heads up the American Express International Bank. The parent firm has moved individuals to Shearson/Amex too, and is sharing marketing techniques and customer lists.
''There has been a good cross flow of individuals,'' Long states. ''I think the managements are working much more toward improving the overall operation.''
But, like Dean Witter and Pru-Bache, Shearson/Amex has gotten off to a slow start in cross-selling and new products. ''They haven't introduced a lot of new products - most of them are a slight variation on an old theme,'' says an industry source who did not want to be named.
Shearson's new Financial Management Account, similar to Merril Lynch's Cash Management Account, has gotten off to a slow start, though executives at Shearson say it is picking up speed. Another new product, the American Express Variable Annuity, is distributed by Shearson/Amex but managed and underwritten by Amex's Fireman's Fund Insurance Cos. The capital attracted to the annuity has ''lived up to our expectations,'' says Shearson/Amex senior vice-president Warren Bender, but ''expectations weren't excessively high.'' Low interest rates have prevented a flashy takeoff of the product. Attempts to tap the Amex credit card base are just getting started.
Speaking of the three brokerage mergers, Spivack says the parent companies have ''provided financial strength. That's the advantage now. As time passes, the other advantages will become clear.''