(September 6 – 09:35 ET) – The proposed US$11.5 billion sale of Donaldson Lufkin & Jenrette by AXA Financial to Credit Suisse is shaking up both the insurance and brokerage businesses.

Merrill Lynch says that the DLJ sale will leave AXA Financial owning US$5.7 billion of CSFB stock, which it expects the insurer to sell off over time to reduce debt. Ultimately it expects that AXA wants to increase the proportion of earnings it gets from its U.S. life insurance business and asset management.

Merrill says AXA also wants to improve synergies with its global business, and will look to make acquisitions for stock once it has erased the brokerage business from its earnings flow. The prospect of future insurance acquisitions either from AXA or a competitor looking to get a jump on the competition sparked a jump in insurance stocks last week.

Meanwhile in the securities business, Merrill says that CSFB’s acquisition of DLJ could materially strengthen its franchise in Europe, while gains in the U.S. may be “uneven”. DLJ was struggling in Europe, where it spent heavily to build a presence.

Merrill suggests that the combined firms get the biggest payoff. “We think the combined European investment bank may ultimately emerge as a leading player in the region. And of course, the European securities business seems poised for strong growth in the wake of the European monetary union.”

Merrill says the deal highlights the growing importance of scale and the need for leading market shares in the securities business. However it doesn’t see CSFB as a threat to the so-called “bulge bracket” firms — Merrill, Goldman Sachs, Morgan Stanley Dean Witter. It suggests that integration costs and the talented personnel who chose to leave the combined firms will both be positive for rivals.

However the prospect of further acquisition should continue to boost the stock of DLJ’s closest rivals, J.P. Morgan, Lehman Brothers and Bear Stearns. Merrill likes J.P. Morgan best, as either a target or an ongoing business, citing its superior asset management business, and international earnings diversification as strategic advantages.
-IE Staff