International -- Finance: Markets
The Tremors from Online Trading (int'l edition)
Buying stocks over the Net is taking off with a bang in Europe, and it's shaking up the equity markets
Back in late-1996, Alessandro Foti saw a revolution in the U.S. that he knew would soon reach Europe: Hundreds of thousands of Americans were trading stocks via the Internet. Foti, who runs Fin-Eco, the asset-management business of Brescia's Gruppo Bipop, took a study team to the U.S. and was soon commuting regularly between his Milan office and Palo Alto, Calif., where he had signed a deal with software house TIBC. The Reuters Group PLC subsidiary provides the electronic platform not only for NASDAQ but also for burgeoning Internet brokers such as E*Trade Group Inc. "I wanted the best system possible in place when we decided to go ahead," says Foti.
Foti's persistence is now paying off. After launching one of Italy's first online stock trading services last December, Fin-Eco is attracting 200 new clients a week. By midyear, they will be able to trade in Frankfurt, Paris, Madrid, and on both NASDAQ and the Big Board in New York, as well as in Milan. Foti expects that before the end of the year, Fin-Eco will have several thousand clients. With estimated revenue of $7 million for every 1,000 new customers, that should produce healthy returns on Fin-Eco's $12 million investment. Says Foti: "This is all happening much more quickly than anybody expected."
So it is--and not just in Italy. Internet stock trading, which is rewriting the investing rules in the U.S., is taking off in Europe. Wired stock investors in big European markets are still a tiny minority. But all signs point to an imminent explosion in demand. In two years, estimates Jean-Philippe Huguet, who heads the German operations of Fimatex, the online trading unit of Societe Generale, cybertraders in Europe could number 10 million.
Such prospects coincide with a historic shift already under way in European stock trading. Europe's equity culture is nowhere near as deeply rooted as in the U.S., and share ownership is not nearly as broad. But recent privatizations, including behemoths such as Deutsche Telekom, Air France, and Telecom Italia, are encouraging share ownership among small investors. The current, drastic fall in inflation and interest rates also is forcing Europeans to flee government bonds in search of better returns. The euro's launch is another big advance. Since Jan. 1, share prices from Helsinki to Lisbon have all been quoted in a single currency.
The big bang in Internet trading will vastly accelerate this maturing process. Buying shares in Europe, after all, has always been a costly, time-consuming exercise almost invariably conducted by banks. "If you call a Dutch bank and order a trade on Monday, it often is not made until Tuesday," says Kalo Bagijn, head of trading and sales at Amsterdam broker IMG, which launched an Internet trading service three years ago.BED AND BREAKFAST. IMG is a good illustration of how rapidly wired trading is taking off. Though tiny--it did 50 orders a day in 1996--IMG was quick to spot the U.S. trend. At about the time Alessandro Foti was studying American trading habits, it became one of the first in Europe to offer cyberservice.
The firm initially attracted only a few hundred clients--almost all of them computer science students at Dutch universities. But last year, its growth took off. The Internet client list is now 4,500 names long and growing rapidly. This has helped make the 10-year-old brokerage one of Holland's biggest. "We can grow several hundred percent a year," predicts Olaf Nijemanting, IMG's director of private broking. "There's a big pent-up demand for our Internet product." The No. 1 reason: Trading costs are a fraction of ordinary commissions. A $50,000 trade with Fin-Eco costs $52; the traditional charge could be as high as $500.
It's the same story in France and Germany, where dozens of online brokers are hitting the market. At Paris-based Cortal, which Paribas set up in 1984 as a discount brokerage modeled on Charles Schwab Corp., a third of its roughly 420,000 clients use the Internet service. Cortal now offers "bed-and-breakfast" specials: If you buy a stock online one day and sell it the next morning, you can execute the sale commission-free. "You buy the stock, sleep with it, and move on," says Philippe Nahum, Cortal's managing director.
Electronic trading will have a look of its own in Europe. Internet use, while expanding, is still small. In France, while just over one household in four has a personal computer, only a 10th of those are hooked up to the Net. In Italy, only 18% of households have computers--and in Spain, fewer still. What's more, most Continental investors still seem loath to give up financial advisers for "do-it-yourself" discount operations.
That's the main reason banks will probably get the lion's share of online trading in the near future--despite aggressive independents such as IMG. Old habits also explain why Internet trading is only now starting, years after American players such as E*Trade, Ameritrade, and Schwab began trading by wire. European banks have moved gingerly because they worried that Internet services would cannibalize hugely profitable equity trading businesses. In Italy, banks derive half or more of their total profits from trading commissions.
But most banks now recognize that they have to get online quickly. "We are going to move into this aggressively, not defensively," says Luca Majocchi, head of retail and private banking at UniCredito Italiano in Milan, which will announce an online service in the next few months.
American companies are also angling for a piece of Europe's pie, though it will be hard to wrest business from on-the-ground players. Schwab, which bought British discounter ShareLink in 1995, is probably the most active Net player in Britain, though competition is growing exponentially. Since launching Internet service last June, Schwab says it has attracted 6,300 customers, with 350 more joining every week.FRENETIC PACE. E*Trade has been pursuing another strategy: licensing its name and interface platform with local players. In January, it launched a service with Paris brokers CPR Bourse, which launched an Internet trading operation a year ago. It is now negotiating in Britain, Germany, and Italy. Day traders already account for up to an eighth of CPR-E*Trade's business, says Guillaume de Charry, the joint venture's MD. "They are the creme of the business," he adds.
Even some of the day-trading habits of the New World are reaching the Continent. Consider Momentum Trading House, an enterprising outfit in Berlin. Opened in October, Momentum claims it's the first in Germany to cater exclusively to day traders. For $730 a month, customers get a desk, two screens, trading software--and free rolls and coffee. Users on a recent day included a former hairdresser, an opted-out dental technician, a onetime gas station proprietor, and a university dropout.
Momentum Trading now plans centers in Berlin, Frankfurt, and Hamburg over the next few months. Trading is so frenetic, says Executive Marketing Manager Melanie Epp, that customers didn't even have time to use the financial news service Momentum briefly offered. "And so far," Epp adds, "no one has gone bankrupt." That can't hold forever, but even bankruptcies, when they occur, are unlikely to slow the rush of European investors onto the Net.By John Rossant in Milan, with Gail Edmondson in Paris, Jack Ewing in Frankfurt, William Echikson in Brussels, and Heidi Dawley in LondonReturn to top