Now that NationsBank Corp. and BankAmerica Corp. have created the first true coast-to-coast commercial bank, the merger partners are turning their attention to building a nationwide investment bank.
NationsBanc Montgomery Securities LLC, the new BankAmerica's securities subsidiary, has been picking up Wall Street talent at a rapid clip. The immediate objective: enable Montgomery to provide a wealth of capital markets products to its Charlotte, N.C., parent's corporate lending customers.
But for the long run, executives at NationsBanc Montgomery Securities have bigger plans.
Carter McClelland, Montgomery's senior managing director in charge of investment banking, said he wants to help create a "bulge bracket" securities firm within the nation's second-largest banking company.
The former Morgan Stanley Group chief administrative officer had only recently left his post as head of both Deutsche Bank's North American operation and its global investment banking unit when he joined the BankAmerica unit last fall.
In an interview last week, Mr. McClelland said he believes in the power of combining commercial and investment banking under one roof. "A securities firm affiliated with a bank is differentially positive," he said.
For one thing, Mr. McClelland said, he can now focus his attention on building Montgomery's coverage of industries with which its parent bank already has significant lending relationships. To that end, he is busy integrating talent from Montgomery, the bank, and Wall Street to develop consumer retail, health care, and technology industry groups.
Mr. McClelland also pointed to real estate, energy, and media and telecommunications as key industry groups where integration is showing some early success. Integrating groups to focus on financial institutions and some traditional industrials is not on this year's agenda.
Mr. McClelland has been working closely with his counterpart at Bank of America on this integration. Jerry Fair, the bank's managing director in charge of corporate banking in the United States and Canada, brings about 140 client managers to the combined effort.
BankAmerica is a syndicated lending leader in all of the sectors Mr. McClelland has singled out. But opinions are mixed on whether that is enough to help Mr. McClelland achieve his goal of joining Wall Street's elite.
"No bank has ever done it before," said Roy Smith, a professor at the New York University Stern School of Business and former partner at Goldman, Sachs & Co.. "J.P. Morgan has advanced farther than most, and they have a big head start on BankAmerica."
But J.P. Morgan & Co. does not have the relationships with middle-market companies that the new BankAmerica has, stretching from Charlotte to San Francisco, said Hal Schroeder, a banking analyst with Keefe, Bruyette & Woods.
"It may sound parochial, but many of these people do not trust New York bankers," he said.
Still, Mr. Schroeder and other analysts agree that BankAmerica would have trouble reaching Mr. McClelland's goal without shelling out a lot of money.
"Certainly the potential is there for the new BankAmerica to be a member of the global bulge bracket, if they are willing to make significant additional investments," said Michael Mayo, a bank equity analyst with Credit Suisse First Boston.
"You can build anything if you are willing to throw enough money at it," Mr. Schroeder said. "The question is, would it be profitable?"
He said the bank could invest in an acquisition, in hiring top talent, or in bidding low to win business-what is known on the Street as "buying deals." In any case, he and others say it would take at least five years to approach Mr. McClelland's goal.
In the meantime, Mr. McClelland said he hopes to intensify Montgomery's focus on leveraged buyout shops-a popular strategy on Wall Street that has gained currency with many commercial banks seeking to boost market share at their investment banking units.
Last year BankAmerica ranked No. 1 in loans to financial sponsors-also known as leveraged buyout shops-with a 16.4% market share, according to Loan Pricing Corp. A year earlier it ranked sixth, with 5%.
But the bank has not been as successful in underwriting junk bonds for financial sponsors, one of the preferred methods of financing leveraged buyouts. BankAmerica ranked No. 6 last year in this high-yield sector with a 9.6% market share, according to Securities Data.
That put BankAmerica behind the two banks that have made the biggest commitment to LBO junk bonds: J.P. Morgan and Bankers Trust Corp., which ranked first and third, respectively.
Mr. McClelland said stepping up the bank's fixed-income work with financial sponsors is important because frequently, buyout shops like to unload bank loans on the fixed-income market once they close a deal.
The key to increasing market share among buyout shops, he said, is to provide them with a steady flow of acquisition ideas. To do this, he said he is interviewing candidates daily to build and run a financial sponsors group and a mergers and acquisitions advisory team.
Mr. McClelland now has 378 people who report up to him, though he expects this number to grow substantially during the next year.
Though the securities division is based in San Francisco, it has made a decided tilt toward New York since the BankAmerica merger last fall. Mr. McClelland and two of his three most senior hires are based in Montgomery's New York office, which employs 551. This is double the staff that the old Montgomery Securities had in New York when it was bought by NationsBank in October 1997.
This $1.2 billion acquisition gave NationsBank equities underwriting, sales, and trading for the first time. But at that time the securities firm was an underwriter primarily of initial public offerings, particularly in the technology and health care sectors.
Montgomery's founder, Thomas Weisel, left the banking unit in September to start another investment bank after a dispute with top BankAmerica executives. Lewis Coleman-a veteran of both the former Bank of America and Montgomery-assumed Mr. Weisel's former position. Mr. McClelland reports directly to Mr. Coleman.
Dozens of people have followed Mr. Weisel from Montgomery to his San Francisco merchant bank, including about a third of Montgomery's technology bankers. But Mr. McClelland said he still has about 40 high-tech bankers, and he is seeking to relocate this group soon to Menlo Park, Silicon Valley's center of high-tech finance.
Mr. McClelland hopes to expand the product menu they bring to technology start-ups. Besides Montgomery's traditional IPO offerings, he said this group will offer aggressive lending packages similar to those done at Silicon Valley Bank.
Though Mr. McClelland plans to focus on the domestic market this year-on companies with a market capitalization up to $10 billion-he said he may open an investment banking office in BankAmerica's London headquarters as soon as next fall.
"Though the bank has a bigger presence in Latin America and Asia, I think Europe represents a bigger opportunity, particularly with the euro," Mr. McClelland said, referring to the new European currency adopted by 11 countries on Jan. 1.
