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Banks, Securities Companies Exploring Links : Legislation: Administration and Congress are looking into easing or repealing 60-year-old restrictions.

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From Associated Press

Word that Wall Street firm Donaldson, Lufkin & Jenrette Securities Corp. might sell out to a commercial bank could be the first step in the eventual melding of the securities and banking industries.

The news follows closely the introduction of several proposals to reform Depression-era laws that bar banks and securities companies from linking up.

Though it’s unclear which proposal--the Clinton Administration’s or one of two congressional bills--will be adopted or whether any will be passed this year, banks and securities firms will be circling each other with the intent to join forces, experts said.

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“It makes eminent sense,” said Burt Ely, a Washington-based bank consultant. “If you look at Europe and Canada, what you find is that the leading financial services organizations are banks and they’re the companies that are buying up other firms.”

Ely pointed to the recent acquisition of the collapsed Barings investment bank by the Dutch giant ING Financial Group as an example of what will eventually take place in the United States. ING has banking and insurance businesses and, through the acquisition of Britain’s Barings, will have global securities operations.

Banks currently have limited ability to offer insurance, underwrite securities and sell investments such as mutual funds. Federal laws restrict the manner in which banks can get into the businesses and the amount of money they can make.

The Clinton Administration’s proposal would allow banks to underwrite corporate stock and bonds or sell insurance as long as they have healthy levels of capital.

A bill backed by Rep. Jim Leach (R-Iowa) would repeal major provisions of the Glass-Steagall Act, a 60-year-old law that bans banks from dealing in securities. Another bill, introduced by Sen. Alphonse D’Amato (R-N.Y.), would create a new type of financial company called a “financial services holding company” and eliminate current restrictions that prevent non-financial companies from owning banks.

Analysts who follow securities firms said the chief executives of banks and Wall Street companies have informal discussions about combining on a regular basis and the proposals probably have intensified those talks.

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Donaldson, Lufkin & Jenrette, a unit of insurance giant Equitable Cos. Inc., is reportedly holding informal talks with several unidentified banks about a sale.

DLJ declined to comment through a spokeswoman. Nancy Amiel, an Equitable spokeswoman, also declined to comment.

DLJ would be attractive to a large bank for its institutional brokering business, as well as its highly regarded equity research arm and securities clearing operation.

Analysts said it’s a good match for large New York banks that focus on serving corporations and already have a foothold in the securities business, as well as a few regional banks that have built up respectable underwriting divisions.

Other securities firms with similar characteristics that would make good partners for banks include such companies as Bear Stearns & Co., Morgan Stanley & Co., and Lehman Bros.

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