With its $135.9 million investment in NDB, Deutsche Bank said it is expanding into online brokering, a sector increasingly pitting Internet start-ups such as E*Trade, Ameritrade Holding and Datek Online against full-service investment houses such as Morgan Stanley Dean Witter, Merrill Lynch and PaineWebber.
While some of the powerful full-service firms have created online brokerages from the ground up by acquiring trading technologies with little retail presence, Deutsche Bank is taking the partnership approach by teaming with an established online player. Investment bank U.S. Bancorp Piper Jaffray ranked NDB as the 12th largest online brokerage--well behind No.1 and No. 2 firms Charles Schwab and E*Trade.
Dutch bank ABN Amro today also announced a similar deal. The bank formed an alliance with Trade.com, investing $62.5 million for a 25 percent stake in the Internet brokerage's parent company, BlueStone Capital Partners.
The deal will allow the Dutch bank to use Trade.com's technical infrastructure to provide its own ABN Amro-branded online brokerage services in markets around the world by the end of this year, the bank said.
The differing strategies are understandable since full-service firms such as Merrill Lynch and Morgan Stanley already have strong retail presences offline, allowing them to build Internet brokerages under their own brands.
"Deutsche doesn't have a meaningful retail presence in the U.S.," said Chris Musto, director of financial services at Gomez Advisors. Musto noted that Deutsche Bank does have some retail outlets through the acquisition of investment firm BT Alex Brown. "But this is a relatively small network. It is very lucrative, but it is not a cure-all to the challenge of Internet retail brokerage."
These banks are paying for what they need most: a trading platform with some brand-name recognition.
Deutsche Bank and NDB plan to create a jointly owned online brokerage service outside of the United States. The alliance also provides NDB with access to Deutsche Bank's U.S. equity research and initial public offering capabilities. In return, Deutsche Bank can provide its service internationally over NDB's trading technology platform.
"This alliance supports Deutsche Bank's e-commerce strategy of global connectivity, linking markets and investors around the world," said Michael Philipp, head of global equities at Deutsche Bank. "It's a major stepping stone to reach online customers without having to rely on bricks and mortar."
Deutsche Bank, which already had a 1.7 percent stake in NDB, will control 16.3 percent of the online brokerage. The bank may purchase another 3 million shares from NDB on the open market.
The companies expect a definitive agreement to be signed during the second calendar quarter of 2000.