Fleet Financial Group Inc. is gearing up to ask the Federal Reserve for corporate debt and equity powers, rounding out the menu of corporate finance products and services it has been building for a year and a half.
Fleet would join at least seven other banking companies that have asked the Fed for permission to underwrite corporate securities this year.
Boston-based Fleet confirmed that it will apply for so-called Tier 2 underwriting powers in conjunction with its planned acquisition of discount brokerage Quick & Reilly Group. The banking company also wants to start its own high-yield-bond and stock underwriting businesses to augment its corporate finance business.
"A filing for broad equity powers is expected in the very short term," said a spokeswoman. "An application for debt financing will be filed over the longer term."
During the past 18 months, Fleet has built up its corporate finance capabilities and pushed into the intensely competitive market for financing leveraged acquisitions. The move into high-yield bond underwriting should complete its leveraged finance arsenal.
"We've really got a relatively comprehensive product array now, and the only piece that we're missing is the public high-yield business," said Timothy Conway, managing director and head of corporate finance at Fleet.
Since moving to Fleet in February 1996 from Citicorp, where he was managing director for sponsor finance, Mr. Conway has built the corporate finance staff to almost 100, from only 15.
He has hired several high-profile Wall Street veterans, including fellow Citicorp alumnus Paul Trefry, to be relationship managers and call on leveraged buyout sponsor firms.
The activity has begun to show measurable returns. Securities Data Corp. said that Fleet acted as agent in 48 leveraged deals totaling $4.67 billion in the third quarter, versus 10 for $2.68 billion in the same period last year.
Adding high-yield bonds to Fleet's corporate finance menu should take that leveraged finance effort even further, said Mr. Conway.
"The way to differentiate yourself in this market is not with capital - because capital has really become a commodity - but with ideas and creativity," he said.
Mr. Conway has also supervised the addition of several products and capabilities, such as the formation last week of Blue Keel Funding LLC, an asset securitization conduit, and a real estate investment banking group formed in September 1996.
"A year and a half ago we put a new strategy in place," he said, "and that included a lot of new staff and significantly beefing up our syndications capabilities."
"We've invested equity" in the sponsors' buyout funds, "we've increased our syndication business and capabilities significantly and then we've staffed up with some very experienced people who have very good sponsor relationships," he added.
Observers said Fleet's corporate finance strategy is sound. "What they're aiming for is to work with their middle-market customer base. They're not looking to be involved in the megadeals," said Ronald Mandle, a bank analyst at Sanford C. Bernstein Securities Inc.
"They're not alone in doing it. BankBoston is doing the same thing. But there're really only two banks in New England, so I think both companies can be reasonably successful at it over time," he added. Fleet now has about 17,000 corporate banking relationships, primarily in the Northeast, that it expects to yield a steady flow of corporate finance business, including merger and acquisition ideas it can take to financial sponsors.
The bank can compete with money-center banks, including Chase Manhattan Corp. and BT Alex. Brown Inc., and investment banks such as Merrill Lynch & Co. and Goldman, Sachs & Co. for larger deals, said Mr. Conway. But most of Fleet's deals are in the middle market, with financings of $50 million to $250 million.
Fleet tends to focus on the Northeast, Mr. Conway said, so a lot of deals flow from the customers already in its franchise. "Our expertise is probably in privately held manufacturing companies, the smaller companies that tend to be good platform plays for sponsors," he said.
Fleet also has established financing groups focused on industries in which financial sponsors are very active, including health care, media, and technology.