As banks buy their way into the securities business, they are showing a clear preference for smaller, narrowly focused firms.
BankAmerica Corp.'s planned acquisition of Robertson Stephens & Company Group, announced Monday, is the latest evidence that banks want to enter the field without doing blockbuster deals, observers said.
"These guys are saying that they'd like a nice piece of steak, but they don't want the whole cow," said Walter Jewett, senior vice president of Booz Allen & Hamilton, the management consulting firm.
"The big banks do not appear to have the appetite to take the risk of buying a major Wall Street firm," he added. "Picking off these boutique firms suits them just fine."
BankAmerica, in agreeing to pay $540 million for San Francisco-based Robertson Stephens, became the third commercial bank in two months to set plans for buying a middle-tier securities firm. Bankers Trust New York Co. and Swiss Bank Corp. had made similar moves.
News of the deal gave a boost to the stocks of several brokerage firms of differing sizes, as investors bet that more deals are in the offing. Shares of Donaldson, Lufkin & Jenrette Inc. jumped $4.625 to $56.375; Legg Mason Inc. was up $2.875 a share to $49.125; and A.G. Edwards Inc. was up $1 a share to $38.
But the stock of San Francisco-based Hambrecht & Quist LLC fell $1.125 a share to $26.625-apparently on disappointment that BankAmerica didn't buy that firm.
While the West Coast still has a handful of regional investment firms that could attract commercial bank suitors-including Montgomery Securities- few commercial banks beyond BankAmerica are large enough or are properly positioned to make a move, analysts said.
Wells Fargo & Co., BankAmerica's local rival, is too busy with its integration of First Interstate Bancorp to want to take on another acquisition, most agreed.
For BankAmerica, the deal meets its well-publicized need to expand capital-raising services for middle market and Fortune 500 corporate customers. BankAmerica's share price rose 75 cents on Monday to $124.
Robertson Stephens, a 19-year-old San Francisco based firm specializing in high technology and health care, brings the bank seasoned equity underwriting and equity research capabilities-two key holes in BankAmerica's investment banking repertoire.
Last winter in "a strategic alliance" signed with D.E. Shaw & Co. of New York, BankAmerica beefed up its equity trading, capital markets technology, and global customer franchise areas. But it was clear that $250 billion- asset BankAmerica was still looking for an equity underwriter.
Robertson Stephens appears to fit the bill.
With about 750 employees in four U.S. cities as well as in London and Tokyo, the firm "is the platform we have chosen to build on for our global expansion," said Michael Murray, BofA's vice chairman in charge of wholesale.
Analysts said, however, that the impact of the acquisition, at least in the near-term, would be felt only domestically.
"The immediate ambitions are much more limited," said Raphael Soifer, analyst with Brown Brothers Harriman. "We're really talking about their domestic customers, the middle market and smaller corporate clients, in BofA's existing service area, which is mainly the West and Chicago."
BankAmerica is paying handsomely for the expertise, more than five times book value. Analysts said that since Robertson Stephens is a privately held firm, it's difficult to assess whether BofA overpaid.
Michael G. McCaffery, who would continue to be the firm's chief executive officer and president, disclosed that the firm's net revenue for the first quarter was $75 million, down from the same quarter last year. The proposed transaction is subject to regulatory approval, including from the Securities and Exchange Commission.
