The chairman of Wall Street's biggest underwriting firm said today that he is "concerned" that the consolidations of many major securities firms has reduced the ability of the industry to handle the financing needs of U.S. industries.
Robert H. B. Baldwin, chairman of Morgan Stanley Co., said that there is "no question that the reduced number of firms has reduced the willingness of "the industry to take positions in new securities offerings.
Generally, when a company sells new stocks or bonds to the public to raise capital, a syndicate of underwriting firms buys the securities from the company at a fixed price and the firms then sells them to their customers.
Baldwin echoed the concerns of Securities and Exchange Commission chairman Harold M. Williams who told the nation's brokers Thursday that mergers among major securities firms hurt the industry's ability to aid companies in raising new funds.
Baldwin noted that 38 securities firms declined to join a syndicate that just offered 9 million shares of Southwest Bell Telephone Co. to the public.
When interest rates begin to turn "flood of new equity issues" from down, Baldwin said, there will be a companies. "I am concerned about the reduced capability of the industry to handle that flood," he said.
Baldwin said that to attract new money and firms into the securities business, the rate of return for brokerage companies must be raised to about 20 percent. In 1978 securities firms earned 16.5 percent before taxes, but in most recent years the return has been well below 10 percent.
In the last decade hundreds of small and big securities firms have either gone out of business or merged with competitors.
Baldwin called on his fellow brokers, gathered here for the annual meeting of the Securities Industry Association, to devote money, time and personnel to lobbying in Washington to push for the proper tax climate to make the securities business more profitable.
"Our fate will be determined in Washington," he said.
Williams, in his Thursday address, also worried that the move by securities firms into other lines of business -- such as real estate, insurance and futures -- hinders their ability to serve their traditional lines of business: stocks and bonds.
David M. Gardiner, president of Dean Witter Reynolds, Inc., said that "with all due respect to Mr. Williams, the trend toward diversification will continue."
For the past 10 years, Gardiner said, "the income derived from securities transactions has declined while the costs of everything we do have risen dramatically."
As a result, he said, securities firms have had to grow larger and move into other lines of business in order to generate a broader capital base.