First Chicago NBD Corp. executives say they purchased Detroit-based Roney & Co. for the firm's regional brokerage network, but they got an equity underwriting bonus.
This will be the first time the bank holding company-the nation's ninth- largest, with $115 billion of assets-has had to make use of the equity underwriting powers it received from the Federal Reserve last summer.
Until the Roney acquisition was completed Monday, First Chicago relied for equities underwriting on an alliance formed in early 1997 with Milwaukee-based Robert W. Baird & Co., a regional securities firm with equities and merger and acquisition advisory capabilities.
The bank plans to maintain that relationship, according to Gerry Byrne, chairman of First Chicago Capital Markets. Mr. Byrne said he considers the 45 Roney capital markets employees complementary to the Baird alliance.
Detroit-based Roney, the largest investment bank based in Michigan, has several industry specialities that Mr. Byrne said might work well outside of Roney's traditional geographic focus on Michigan and northern Indiana.
"They have been very strong on small-bank M&A, and that is something I think could transfer very well to other parts of the Midwest," Mr. Byrne said.
Roney also specializes in the automotive, health care, and manufacturing industries, and it has a large part of the M&A market in Michigan's automotive component supply business.
"In IPO and M&A work, your credibility is very much tied to your industry knowledge. Doing the first deal in an industry is very difficult," Mr. Byrne said.
But Mr. Byrne said the decision to assign clients to Baird or to Roney Capital Markets, now a division of First Chicago Capital Markets, will depend more on size than on geography or the nature of the underwriter's relationship with the bank.
"Baird is a wonderful fit for our middle to larger corporate clientele," Mr. Byrne said. "Roney is much more industry-specific and will transfer those skills to some of our regional customers."
Though both the bank and Roney executives hope to increase Roney Capital Markets' staff, "We'd really rather that be demand-side pulled rather than supply-side pushed," Mr. Byrne said.
Michael Mayo, a bank equity analyst with Credit Suisse First Boston, said bringing equity underwriting in-house would give First Chicago some more flexibility in capital markets.
"This isn't going to make or break the commercial operation, but it's one more bell and whistle," Mr. Mayo added.
Bill Roney, the head of Roney Capital Markets and the grandson of Roney & Co.'s founder, said his group would benefit from the merger because of increased distribution opportunities.
"Our primary distribution for our product has been Roney's brokerage," Mr. Roney said. Roney had 325 brokers in 19 offices in Michigan, Indiana, and Ohio at the time the acquisition was completed, more than doubling First Chicago's distribution network, to 555 brokers.
Mr. Roney said his group also hopes to benefit from First Chicago's fixed-income expertise. While about half of Roney's capital markets capabilities were in municipal fixed-income offerings, it's corporate finance work was primarily in equities and M&A.
