FINANCIAL SERVICES EXECS TOUT REGION'S RESILIENCE
By Bill Beggs Jr.
At press time, gasoline was nearly $4 a gallon in and around St. Louis. Financial prospects for home-builders were
tumbling down the basement stairs. And the depressing
news continued to unfold nationally as Bear Stearns crumbled and
Wall Street’s woes deepened.
But, while the region is by no means a safe haven from national
economic trends, there is a different way of doing things here in
the financial services sector. For decades, there has been a more
conservative mind set on investing. For the most part, St. Louis firms did not get involved in the risky sub-prime lending practices that have led to the national foreclosures crisis. Our work ethic here is remarkable, as observers from both inside and outside the region have pointed out. And, our universities prepare graduates quite well for the rigors of a career in finance. (Keeping them here after graduation, however, is a challenge that the best minds in the region work diligently
to address.)
>> Gil Bickel
senior vice president,
Morgan Stanley
>> Bob Ciapciak
partner, Edward Jones
>> Ralph Clermont
managing partner, KPMG
>> Donald Hutson Jr.
partner, BKD, LLP, St. Louis office
>> Joe Schlafly
senior vice president,
Stifel, Nicolaus & Co. Inc.
>> Scott Zajac
senior managing director,
Advantage Capital Partners
To get unique perspectives on the state of the region's financial services industry, we put some of those heads together. Six financial services execs were posed the same series of questions and responded in writing, creating a "virtual" roundtable on the issues.
How does the A.G. Edwards-Wachovia merger change the playing field for the financial services industry in the St. Louis region?
Ciapciak: It represents the first time an out-of-town bank has purchased an independent brokerage firm in St. Louis.
Clermont: The merger will make the
St. Louis region more competitive. The region now has the largest base of investment firm headquarters than any U.S. city other than New York. This should help the region attract and retain the talent necessary to make these firms successful and continue to grow.
Hutson: Since Wachovia has decided to move its headquarters for brokerage
operations to St. Louis, the merger has strengthened the local financial services industry. However, as with any major merger or consolidation, the merger has created opportunities for other local firms to strengthen themselves by recruiting top talent and resources away from Wachovia. You will also see other top producers leave Wachovia to start their own companies, such as Benjamin F. Edwards & Co.
Schlafly: St. Louis is headquarters to the largest concentration of securities firms in the United States outside of New York, which dates to the 19th century when St. Louis was the western frontier of finance. Before industry deregulation in 1975, 24 New York Stock Exchange member firms maintained headquarters here.
With this background, Wachovia simply adds to the size and strength of our
financial services industry.
Zajac: The combination of A.G. Edwards with a bank was all but inevitable, and having St. Louis selected as the headquarters for Wachovia Securities makes this a great deal for the region. I spent half a decade with A.G. Edwards, and it was a wonderful firm with a unique culture. Other players will look at St. Louis as a good place to locate. Some of the former A.G. Edwards players are already starting new firms and building entrepreneurial financial services and investment-banking operations that will make the local industry more vibrant and competitive. The current trouble that Wachovia is experiencing from the credit crisis could dampen hopes of expansion, but this, too, shall pass.
How has the headquarters presence of Edward Jones, Scottrade and Stifel, Nicolaus & Co. Inc. affected the local financial services market? The overall St. Louis economy? How does their presence strengthen St. Louis?
Hutson: These companies are significant employers in the area. They also have helped establish St. Louis as a leader in
the financial services industry. Finally, they
provide creative funding and financing
solutions for growth and development.
Banks also make a significant contribution to the strength and growth of the local financial services industry. The local area has a strong banking community, which is also a source of economic growth.
Schlafly: This is one reason why St. Louis has a large, highly competent employee base of operations, support and infrastructure personnel. Key professional activity such as information technology, trade processing, retail branch support and a host of other support activities comprise a very large employment base in St. Louis, trained and built over generations. A significant number of these highly professional employees live in Southwestern Illinois and commute to downtown, all of which strengthens the regional economy.
Zajac: It's all good. We have more talent, more opportunities and more competition.
Clermont: Clearly, this has had a very positive impact on our marketplace and economy. While many of the New York-based investment firms have reported significant losses and have announced substantial layoffs, Edward Jones, Scottrade and Stifel, Nicolaus & Co. Inc. have all performed well in a difficult environment, and have been expanding and adding jobs. This continued job creation bodes well for the area and will continue to strengthen the local economy.
Ciapciak: The presence of three NYSE
member firms—and a host of NASD/FINRA member firms—affords individual investors with a tremendous variety of choices and different ways of investing.
All three are growth-oriented, which translates into enormous job creation for the metropolitan area. Plus, they have a commitment to giving back to St. Louis in an effort to enhance the quality of life.
Sub-prime lending practices have led to the national foreclosures
crisis and contributed to a recession. In general, how quickly, and seriously, do national economic trends affect St. Louis?
Schlafly: The sub-prime lending crisis and its impact on financial markets had an immediate effect on St. Louis investors. However, because of our natural inclination toward conservative practices, St. Louis has not been as severely affected. Nonetheless, new home construction has screeched to a halt, hurting our home-building community, as well as its lenders. This segment of the economy will take time to heal, and $4 gas prices will have the long-term effect of
relocating people closer to the City.
Zajac: This is challenging for St. Louis, as we are also home to some major mortgage players like Citigroup and Wells Fargo. Our market did not experience the rapid appreciation and speculation that led to rampant foreclosures in other parts of the country, so I see this as more of a "correction" than a depression in our local real estate economy. However, builders and developers are not doing well, and this will have some impact on certain sectors of our economy that are involved in the housing supply chain.
Hutson: Naturally, the overall economy does affect the area greatly. The sub-prime lending issue and the mortgage crisis have created many problems in the local market. However, given the conservative nature of the local banking community in general, it has not had as great an impact as other regions in the country.
Ciapciak: St. Louis is moderately insulated from the economic trends that begin on the coasts. That is not to say that we are immune. Deep-rooted economic issues ultimately will affect all communities.
Clermont: As is almost always the case,
St. Louis tends to avoid the high and lows of economic cycles. The current downturn in real estate, led by the collapse of the sub-prime market, appears to be no different. While local real estate prices have declined and foreclosures have increased, the impact on the economy here has been and should continue to be significantly less than in many parts of the country such as California and Florida.
What are some of the most significant changes you've seen in the financial services industry here in the last 10 years? Within the past five years?
Bickel: A few of the significant changes are the increase of smaller banks, financial
planning firms, investment management firms and the decrease of regional banks and brokerage firms. In the last five years, that trend has continued to accelerate, as the mid-size firms have disappeared. Meanwhile, entrepreneurs have started new, smaller operations. And, of course, the larger firms have grown by acquisitions.
Schlafly: St. Louis has seen continued
consolidation accompanied by the growth of discounters, such as Scottrade over the past 10 years. The continued growth of capital in large mutual funds and hedge funds will slow. Given the recent problems on Wall Street, all types of investors will return to the "Main Street" principles of integrity, service and long-term relationships. Managing the wealth of others is not a commodity business, nor is it subject to outsourcing.
Zajac: The transformation and growth of Edward Jones has been remarkable. Smaller firms like Renaissance Financial are growing rapidly and addressing a different segment of the market. The continued growth of firms like Citigroup Mortgage and MasterCard have helped to position the region as a major player in financial services processing and technology, which tend to be less cyclical.
Ciapciak: Many large firms have targeted Òhigh net worthÓ investors to the exclusion of typical individual investors. This has provided firms that are prepared to assist investors of varied means with a tremendous opportunity.
Clermont: One significant change over the past 10 years has been the continued consolidation of the banking industry, which has been going on for several decades. While this has resulted in the loss of major regional banks headquartered in St. Louis, it has not reduced competition.
Another important trend has been the growth of employment in the financial
services industry. In spite of continuing consolidation in the banking industry, in the past decade financial services companies here created more than 4,000 new jobs.
In the last five years, in response to the consolidation in the banking industry, there has been a proliferation of new bank charters, as displaced bank management seeks to recreate smaller, local-based community banks. These newly chartered banks often focus on a specific market segment such as private banking, entrepreneurial business or wealth management. These new bank charters, along with expansion by existing banks, have led to an explosion of new bank branches. This trend runs contrary to earlier forecasts, which had predicted a slowdown in branch expansion as more transactions are processed online.
Hutson: From the banking perspective, we have seen the consolidation of many of the large local and regional banks into large super-regional or national banking organizations. This has allowed new, locally owned, community-oriented banks to be established and prosper. There are more than 130 community banks within the local market who have become financing solutions for small
to medium-sized businesses. The friendly regulatory environment has allowed community banks to expand, grow and prosper.
Another trend is elimination of the barriers between banking and the financial services industry. We're seeing banks continue to expand their products and services into many areas traditionally served by brokerage firms. We're also seeing brokerage firms, such as Stifel and Scottrade, enter the banking industry by either acquiring or opening banking operations.
What financial trends do you
foresee in St. Louis for the next
12 to 18 months?
Schlafly: The key to the success of the
St. Louis-based financial services industry is its long standing commitment to integrity, honesty and service to its individual, corporate, institutional and public entity clients. Given the national financial trends, and
certainly those relating to the activities of Wall Street in the area of managing risk,
St. Louis-based firms will only prosper.
Zajac: The city real-estate market may get worse before it gets better. The investment in housing and businesses fueled by publicly stimulated tax credit equity will ultimately transform the City and make it a case study for urban revitalization. The broader region will also thrive because our economy is diverse and the entrepreneurs who are building businesses here want to live and grow their businesses here.
Ciapciak: I'm extremely optimistic about the economic prospects for the area. There is a significant amount of construction activity, which indicates that we continue to be an attractive location for businesses.
Clermont: Trends will continue to mirror the national trends, but to a lesser degree. The housing market will begin a slow rebound from the recent slump. This should provide a basis for slow improvement in the St. Louis economy. Another key factor will be the amount of net job growth. It is clear that job losses are likely to continue in the manufacturing sector, while job creation will continue in the services industries, such as financial services and healthcare.
Hutson: Banks continue to face challenges with credit quality and problem loans, yet given the overall financial strength of the banking industry, they will continue to survive and again prosper. Over the past few years, banks have experienced financial success and, due to their conservative approach to the market, have strengthened their capital and reserve, which will allow them to weather the downturn.
Also, I think we will see further consolidation in the financial services market within the next 12 to 18 months, as banks and other companies continue to focus on profitability and remaining competitive.
Bickel: We will continue to see the mid-size firms disappear through mergers. Because of the slowing economy and financial pressures, it would not surprise me if some of the smaller firms start combining their operations to become more financially efficient.
Are there special benefits to having quality institutions of higher
learning in the area? How well are entry-level and/or master's degree candidates prepared for a financial services career?
Zajac: There are absolutely benefits to
having top university programs, particularly in finance. Our local universities do a great job of producing talent. Unfortunately, we still lose many promising finance graduates to other areas of the country where salaries are higher and young people perceive the culture to be more interesting.
Ciapciak: We're fortunate. Our experience is that local graduates have the talent and knowledge to contribute to the business immediately.
Clermont: They provide local companies with a large pool of highly trained entry-level and advanced degree candidates. This talent pool also attracts new employers to the area, as access to a trained workforce
is often the No. 1 criterion for companies looking to relocate.
Many students graduate with strong business backgrounds and are well suited for careers in financial services. The challenge will be to convince more of these graduates to remain here, rather than begin their careers at higher-profile financial services companies on the East Coast.
Hutson: Individuals in our industry have diverse backgrounds that don't always include accounting and finance. The quality of the institutions in St. Louis is evident in the leaders that emerge and what they contribute.
The financial services workforce—and, in particular, banking—was also dependent on training programs once offered by many of the local and regional banks headquartered here. Through consolidation, however, training programs have been eliminated. Many of the leaders of the regional banking industry can trace their roots to these programs.
Bickel: One of our great strengths is the local universities and colleges. Their research product will be critical to the entrepreneurial health of St. Louis. Their employees are well educated and hold high paying positions. From a financial services industry prospective, their business school graduates are extremely well prepared and can add immediate value to any financial organization.
Schlafly: Absolutely. Washington University is the greatest asset in the region. It is one of the finest academic institutions, not only in the United States, but globally. Saint Louis University is now arguably one of the finest Catholic universities in the United States and Webster University and UMSL are not far behind. These and other extraordinary institutions within St. Louis provide a terrific resource to the financial services industry here. In fact, a key goal is to work hard to keep these young graduates in St. Louis.
What are strengths of our local workforce? Overall, what are your thoughts about the regionÕs financial services employment prospects?
Ciapciak: St. Louis has a tremendously
talented and deep workforce. The vast majority of our positions at Edward Jones are filled by residents of the Greater
St. Louis metropolitan area.
Clermont: With KPMG hiring 35 to 40 graduates annually, we have a good window into the qualifications of the local workforce. Besides outstanding skills and creativity, the local workforce brings with it a very strong work ethic and solid Midwestern core values. In addition, they bring a broader perspective than earlier generations, with work/life effectiveness, diversity and environmental issues being important to them in addition to their careers.
Given the overall strong position and
performance of St. Louis-based banks and investment firms, the prospects for employment in the financial services sector remain steady, if unspectacularÑbut good compared to parts of the country that have experienced a more dramatic downturn in the
current economic cycle.
Hutson: I think employment in the community banking industry will continue to remain steady. Banks will continue to search for opportunities to hire experienced banking professionals, especially loan officers, who will position them to grow and expand as the downturn continues to ease. The consolidation of the banking industry I mentioned earlier has resulted in fewer trained banking professionals for the St. Louis area. As a result, there is a shortage of qualified
banking peopleÑespecially in lending and
operations positions.
Bickel: The St. Louis work force is hard-working, well educated and motivated to succeed. We have a diverse work force with a strong Midwestern work mentality. Given the opportunity, they will certainly repay an employer's hiring decision.
As the baby boomers age, the demand for financial services employees will grow as the need for sophisticated planning and advice explodes. We will need more qualified people to help them.
Schlafly: The strengths of the local workforce reside around their multigenerational employment as support professionals for the securities industry. As mentioned previously, information technology, operations experience, trade processing, branch support and a host of other services exist in the St. Louis region and constitute a great strength. Given the high costs of New York City and the problems on Wall Street, St. Louis will grow even more attractive to young professionals.
Zajac: The local workforce is very strong and the work ethic is outstanding. After the credit crunch resolves and the recent mergers are absorbed, St. Louis will be a great place for financial services professionals. And, as cost-cutting becomes increasingly important, more firms will look to St. Louis as a place to locate and expand.
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