PNC Bank Corp. said yesterday that it plans to enter into a strategic alliance with investment banking firm Friedman, Billings, Ramsey Group Inc.
Under the terms of the agreement, Pittsburgh-based PNC will acquire a 4.9% equity stake, representing $40 to $45 million, in Friedman. The North Arlington, Va.-based firm-a big player in the public offering market-was expected to file plans with the Securities and Exchange Commission on Thursday to take roughly 20% to 25% of the company public.
For PNC's part, the alliance could help the bank gain a toe-hold in both the equity and high-yield debt underwriting markets, said Joel Calvo, president and chief executive of PNC Brokerage Corp. and PNC Capital Markets.
"We will be filing for a Tier 2 application in the near term," said Mr. Calvo. Granted by the Federal Reserve, Tier 2 powers allow bank holding companies to underwrite corporate debt and equity. Mr. Calvo said PNC would use the Friedman Billings alliance to serve the bank's middle-market corporate banking clients.
Ralph S. Michael 3d, executive vice president of corporate banking at PNC, noted that forming an alliance with Friedman was easier than laying out a lot of capital to buy a firm, as many of PNC's peers have done.
"If we had gone the other way and bought a 100%, or a very large share of the company, not only would we have a huge investment, we would also have to change the culture of the two organizations," he said.
"Our whole point here is to create a product alliance," said Mr. Michael, who added that PNC wants Friedman to continue doing what it does best, taking companies public.
Meanwhile, Mr. Calvo said that the alliance fits in with PNC's bid to expand its fixed-income area. The banking company recently hired Richard Tito from NationsBank Corp. to help increase tax-exempt and taxable sales and trading.
PNC already has a strong municipal presence, said Mr. Tito. However, he said that to move into the Tier 2 environment the bank needs to build the same sales, trading, and distribution capabilities on the taxable side.
"We're building a strategy on the taxable side that will mirror that municipal model," Mr. Tito said.
Separately, Friedman, Billings said Thursday it hired Jonathan R. Legg from Legg Mason Wood Walker to launch a private client services group.