Nearly six months after receiving authority to offer investment banking services, Natcity Investments Inc. of Cleveland is gaining momentum in its efforts to build a full-service brokerage operation.

By expanding the investment banking unit, National City Corp. is trying to transform itself into a one-stop financial services powerhouse for its traditional middle-market customers.

Though National City's efforts are in the initial stages of development, they mirror efforts money-center banks have made in recent years in anticipation of the repeal of the Glass-Steagal Act.

But some wonder whether a regional bank of National City's size can create the economies of scale needed to make such an operation profitable.

Herbert Martens Jr., Natcity Investment's chief executive, says it can. Since completing its acquisition of Indianapolis-based Raffensperger, Hughes & Co. - where Mr. Martens was also chief executive before the merger - the firm has set about expanding its investment banking and fixed-income sales operations.

On Dec. 22, the firm announced it had promoted Marvin Stawicki to head the fixed-income sales group and had hired two Cleveland-based institutional salesmen from J.C. Bradford & Co. as part of the expanded operation. Earlier, Natcity hired McDonald & Co. Investments Inc. veteran Dennis Golem as senior managing director of its Cleveland-based investment banking activities.

The emphasis for 1996 will be on developing Natcity's distribution network, Mr. Martens said.

"We've really shown the marketplace we have a commitment to full-service brokerage," he said.

Others wonder, however, whether such an operation is worth the cost. National City's senior management told analysts they anticipate revenues from Natcity of about $30 million, less than 2% of the parent company's expected 1995 revenues. At that level, they hope to break even.

"This is a longer-term initiative for them," said Fred Cummings, an analyst with Cleveland-based McDonald & Co. "I think they're positioning themselves for the imminent change in Glass-Steagal."

Other regional banks, like Barnett Banks Inc. of Jacksonville, Fla., have investment banking powers but rejected the idea of going it alone. Instead, Barnett has formed an alliance with Little Rock-based Stephens Inc. to provide Barnett's clients with investment banking expertise.

"It is extremely expensive to build an investment banking operation and would be almost prohibitive for us to start-up," said Rob Dewey, director of commercial banking with Barnett.

But Mr. Golem at Natcity said the firm will exploit specific industry niches that complement the regional and industry focus of the firm and the bank.

One such industry focus is the health-care industry, which is strong in the company's current markets in Indianapolis and Cleveland and in the Pittsburgh market, which Natcity is entering with the acquistion of Integra Corp.

To jump-start its health-care business, Natcity will begin research coverage of the health-care industry after hiring two specialists from Butler Wick, an Ohio-based investment banking firm specializing in health care.

"We're trying to match what we do well with the industries where the bank is dominant and in those areas where the bank is located," he said. "We're trying to pick some pieces that make sense to us."

Like other regional banks, any investment banking effort by National City is restricted by Glass-Steagal. The act places a 10% limit of total revenues that can come from investment banking operations. While the revenue base of many money-center banks is large enough to accommodate this restriction, the limits prevent many regional banks from acquiring established broker-dealers.

But Mr. Cummings said the company is likely to need additional revenue sources should Congress relax these restrictions.

"Clearly, National City would prefer to do an acquisition in this area to make it a more meaningful contributor to the bottom line," he said.

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