Surveying KeyCorp's four-month-old investment banking office in Manhattan, William B. Summers Jr. sees room to grow.
Though a small institutional sales force occupies the middle of the room, rows of empty offices ring the sales floor. Mr. Summers, who heads KeyCorp's investment banking unit, hopes to fill the offices with high- powered investment bankers-a breed hard to find in the company's hometown of Cleveland.
Mr. Summers is clearly on the move. He negotiated the sale of Cleveland- based McDonald & Co. to KeyCorp after only three years as McDonald's chairman. KeyCorp completed the $653 million purchase in October.
Mr. Summers said it was a tough decision to sell McDonald, because he knew many of the former chairmen.
"Everyone would like to remain independent," Mr. Summers said. But given the realities of the financial services industry, he thought he needed deeper pockets to shore up his firm.
Mr. Summers has long been known to his colleagues as a builder. "When I saw him building up the bond department in the '70s, I said to myself, 'This is someone who will take the firm somewhere,'" said Jack N. Aydin, a McDonald veteran who manages the New York office.
Mr. Summers wasted little time before digging into the bank's deep pockets. In February he agreed to buy Trident Financial Corp., a Raleigh, N.C., firm that has been rolled into his division, Key Capital Partners.
Trident specializes in giving financial advice to middle-market companies. Trident is also an industry leader in converting insurance companies and thrifts to publicly held firms.
KeyCorp management decided some time ago to build its capital markets presence through acquisitions. About a year before buying McDonald, KeyCorp's chairman, Robert W. Gillespie, set the goal of expanding investment banking revenues to 20% of the corporate total by the end of next year.
Mr. Gillespie's strategy is the natural extension of a decision KeyCorp made some years ago to prune its community banking business and focus more sharply on national specialty finance business lines.
And Mr. Summers also believes in building through acquisitions. In September, about a month before completing the sale of McDonald to the bank, he bought another full-service securities firm Rochester, N.Y.-based Essex Capital Markets Inc.
Mr. Summers said he plans to make more acquisitions, now that he is part of the management of the nations 12th-largest banking company.
KeyCorp of Cleveland has been the subject of takeover rumors for the last few weeks, and a beefed-up securities presence could enhance the banking company's attractiveness, observers say.
But reaching Mr. Gillespie's ambitious goals will be a tough enterprise. KeyCorp realized $66 million in revenues from investment banking and capital markets in the first quarter. That was up from $47 million a year earlier but down from $80 million in the prior quarter-the first since the bank acquired McDonald.
"McDonald outperformed the securities industry in the fourth quarter and underperformed the industry in the first quarter," said R. Jay Tejera, a banking analyst with Ragen MacKenzie Inc.
Mr. Tejera attributed the quarter-to-quarter decline to KeyCorp's and the former McDonald's lack of strength in the high-technology and media sectors that dominated the market last quarter.
But Mr. Summers indomitable confidence seems unshaken by the new challenges he faces as chairman of Key Capital Partners and a member of KeyCorp's management committee.
He has a $68 million war chest-set aside by KeyCorp as part of the merger agreement-to retain McDonald's top people and to hire investment bankers to fill those empty desks in New York.
So far the hiring has been modest. The highest-profile addition to the investment banking staff was Michael Krupa, a real estate investment banker who recently joined KeyCorp from Salomon Smith Barney, a Citigroup unit.
Key Capital Partners' head of investment banking, Daniel F. Austin, says the prestige of the Fifth Avenue office will probably help him hire more executives like Mr. Kruppa.
McDonald's old institutional sales group, which still dominates the office, had been based in Jersey City-a location that no one saw as a lure for new talent.
Of the 150 investment bankers at KeyCorp today, almost all of them hail from McDonald. The banking company had about five investment bankers before the McDonald acquisition, and it has added about five more since then.
Mr. Austin said he would also like to enlarge the equity research team, a move that can be important for attracting underwriting business, to keep those expected hires busy.
But the justification for the purchase of a securities firm by a banking company is usually based on cross-selling. Mr. Summers acknowledges that KeyCorp has not had much success in this area.
But he said the management team has spent the past few months putting together an incentive program in place, to encourage more cross-referrals between the commercial and investment bankers.
"What gets paid for gets done," Mr. Summers said about the plan, which he and other executives kicked off last month.
Enthusiasm for the program appears to be high, according to Mr. Summers. About 150 KeyCorp employees crowded into an auditorium in the Cleveland home office-while another 150 listened on conference calls-as he and other top KeyCorp executives introduced the incentive program.
"From here on out, we will be judged on whether we deliver the business. But we won't look back and say we didn't make this work because we didn't lay the foundation," he said.