Showing that banks' march into the securities business is not just a big-bank phenomenon, Fifth Third Bancorp said Tuesday that it plans to acquire Ohio Co., a regional brokerage firm.
With this deal the Cincinnati-based banking company follows in the footsteps of giants like NationsBank Corp., BankAmerica Corp., Fleet Financial Group, and most recently U.S. Bancorp.
Like those banks, $21 billion-asset Fifth Third said it is looking to enhance its business in several spheres-in this case investment banking, retail brokerage, and money management. Ohio Co. is particularly strong in municipal and corporate debt underwriting, and would also bring Fifth Third 200 retail brokers to sell its investment products.
Fifth Third is "getting into the me-too game," observed Jarius DeWalt, an equity analyst with M.R. Beal & Co.
Terms of the deal were not disclosed. But one industry observer said Fifth Third is probably paying less than $100 million for the Columbus, Ohio-based brokerage, which is privately held.
With the acquisition, Fifth Third plans to apply to the Federal Reserve Board for permission to underwrite equity-a business in which it does not currently compete. The bank wants to provide a full range of services to middle-market corporate clients, said Michael K. Keating, executive vice president at the bank.
Ohio Co. "is a nice complement to what we do," he said. "In investment banking, it will enhance our presence in that market."
The acquisition would also bolster Fifth Third's retail brokerage business through the addition of 200 brokers to the bank's 50-member team. The merged institution would have a branch network of 100 offices and a brokerage client base of 120,000 customers with $7 billion in customer accounts.
"All these banking companies are realizing that the brokerage aspect of the business can be a powerful distribution tool," said Joseph Duwan, an equity analyst with Keefe, Bruyette & Woods, New York.
On the investment management side, Fifth Third and Ohio Co. would have combined assets of $15 billion under management, including $4 billion in mutual funds. Fifth Third recently paid $18 million for Heartland Asset Management, an Indianapolis money manager with $900 million of assets under management.
According to Mr. Keating, "geographical synergy" played a part in the deal. Though both institutions have locations in Ohio, Indiana, and Florida, Ohio Co. would bring Fifth Third outlets in Michigan and West Virginia. Mr. Keating added that Fifth Third's relationship with Ohio Co. goes back to 1989, when the bank began providing custody services to Ohio's mutual funds.
Compared to its larger competitors, Fifth Third is gambling a relatively small sum of money on the brokerage business. Last week, U.S. Bancorp agreed to pay $730 million for Piper Jaffray Cos., a Minneapolis investment bank.
Ohio Co. is small compared with Fifth Third, "so I don't think there's a lot of risk here," said Mr. Duwan. Fifth Third has a market capitalization of $12.5 billion.
Shares of Fifth Third closed down 96 cents at $79.50 on Tuesday in trading on the Nasdaq market. The deal is expected to close early next year.