Commercial banks are among the most likely buyers or partners for the financial products business of D.E. Shaw & Co., which put itself on the block last week, according to a source in the derivatives business.

BankBoston Corp., Bank One Corp., and Wells Fargo & Co. all have large bases of corporate customers that would be well served by D.E. Shaw's equity derivatives and other equity-linked products, the source said.

And unlike investment banks, few commercial banks have built their own equity derivatives capability.

D.E. Shaw, which had a relationship with the old BankAmerica Corp. of San Francisco before its recent merger with NationsBank Corp., is looking for "someone who doesn't have a well-defined equity derivatives business," the source said. Investment banks "would already have an equity derivatives function."

New York-based D.E. Shaw, a privately owned hedge fund and securities firm, said it is looking for a financial partner or buyer for its equity derivatives and global convertible bond and warrants business, which employs about 180 people. The company said it has hired Wasserstein Perella & Co. to help it.

Equity derivatives are structured, over-the-counter transactions designed to let institutions hedge specific risks. D.E. Shaw, one of the largest traders of these products, formed its partnership with BankAmerica in March 1997 to provide equity derivatives and other equity-related products to clients of the banking company.

The alliance began to fray last month when BankAmerica reported it had lost $372 million in the third quarter in a bond trading venture with Shaw. But the decision to seek a new partner for the equities-linked business was unrelated to the bond-trading loss, said Nicholas Gianakouros, a D.E. Shaw vice president.

Instead, he pointed to the $43.1 billion NationsBank-BankAmerica merger, which closed Sept. 30 keeping the BankAmerica name.

NationsBank had spent the past year building its own equities derivatives capability within NationsBanc Montgomery Securities. In 1997, Montgomery hired Jonathan Sandelman from Salomon Smith Barney to develop a derivatives business.

Mr. Sandelman this year has hired for the firm roughly 80 derivatives professionals, many from Salomon. The new BankAmerica signaled its confidence in Mr. Sandelman and his team last month by appointing him to Montgomery's seven-member executive committee.

"The losses have nothing to do with the financial products group," Mr. Gianakouros said. "They were confined to proprietary bond trading."

Mr. Gianakouros declined to say whom the firm is courting. But he listed a number of characteristics Shaw needs in a partner: "a good credit rating, some capital to run the business, and extensive corporate relationships."

All these can be found in a commercial bank.

However, Mr. Gianakouros did not rule out partnering with an investment bank that might want to "substantially bolster an existing presence."

D.E. Shaw would need to find a new partner or buyer for the business by the end of 1999, which is when BankAmerica will stop being a counterparty on his firm's derivatives transactions, Mr. Gianakouros said.

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