Brokerages spin onto the Net
Several Wall Street firms are hoping the market for Net stocks will enable them to raise beaucoup capital for their online trading units.
Donaldson, Lufkin & Jenrette today is expected to sell shares of its online brokerage DLJDirect, raising money to expand as trading over the Internet grows by 10 percent a month.
Others are also planning stock sales to pay for expansion and marketing. Toronto-Dominion Bank's TD Waterhouse Securities, next month may sell a 10 percent stake for $1 billion.
And National Discount Brokers Group earlier this month filed to sell 2.6 million new shares.
Merrill Lynch, among the more hesitant of the big Wall Street firms to take to the Net, is creating a separate unit for handling certain functions for institutional investors.
Bucking the trend is Datek, which today said it has raised $300 million in private financing to help pay for advertising, forgoing a planned public stock sale this year.
The DLJDirect IPO "is something that people really want,'' Randall Roth, an analyst at Renaissance Capital in Greenwich, Connecticut, told Bloomberg "It looks like a bargain as far as other brokers are concerned.''
The rush to the public markets has its detractors. Among them is Rick Barry, a financial analyst with J.P. Turner, who said the brokerages are motivated more by greed than need, hoping to get in on the IPO boom before it busts. Internet stocks have begun to decline, Barry said, but the general public still seems to be "willing and able to pay outrageous prices" for Internet stocks.
"Why not take advantage of it now rather than in the middle of a bear market that we have already started?" Barry asked. "I think the mood is going to be much different in a month from now."
Still, the top dogs in the online-brokerage market are showing returns that still have investors licking their chops. Shares of market leader Charles Schwab have risen 83 percent this year, while E*Trade Group, No. 2, is up 313 percent. Ameritrade, at No. 6, is up 460 percent.
And it may turn out that, among Internet stocks, brokerages will be the last to fall in the event of a downturn. Millions of U.S. investors now buy and sell stocks and bonds over the Internet, paying a fraction of the cost per trade they do with traditional brokers. That's meant growing profits -- and rising share prices -- for Internet companies.
Bloomberg contributed to this report.