Last July, National City Corp. took a detour down a road untraveled by bankers for more than six decades.

With its purchase of Indianapolis-based Raffensperger, Hughes & Co., National City became the first commercial banking company since 1933 to acquire a retail brokerage with investment banking capabilities.

The purchase gave the Cleveland-based banking company an additional 55 brokers to complement its existing staff of 80. And these new brokers were of a different ilk, having cut their teeth in a sales-oriented environment alien to most bank operations.

National City's decision to enhance its modest brokerage unit by acquiring a nonbank firm stands in stark contrast to banking industry convention. Instead of buying their way into the securities business, other major banks have chosen to forge partnerships with investment marketing firms and nonbank brokerages or simply to build in-house programs.

For David A. Daberko, chief executive of National City, the acquisition was a linchpin in his strategy of quickly transforming the $36 billion- asset banking company into a full-fledged financial services institution serving Indiana, Kentucky, and Ohio.

"In one fell swoop, we gained a goodly number of experienced people," said Mr. Daberko, referring to the dozens of retail brokers and investment bankers that came with the deal. "This was the right size firm with people that we knew."

With the acquisition of Raffensperger - formerly the largest full- service securities firm in Indiana - National City doubled the size of its existing securities business.

The bank also gained Herbert R. Martens Jr., Raffensperger's chief executive, who now oversees National City's securities business as chairman and CEO of NatCity Investments.

Mr. Martens, a veteran investment banker who is currently staffing up both the full-service retail brokerage and corporate securities underwriting businesses, sings the praises of building a brokerage through acquisition.

"Because of our new size, we are capable of attracting both brokers and investment bankers today that neither firm alone would attract," Mr. Martens says.

"The issue for National City was, 'Where do you get people to grow the organization?', and the decision was made to buy somebody rather than running around trying to build a business one hire at a time," he says.

In recent years, a handful of small banks have made modest purchases of small brokerages. In 1994, for example, Firstbank of Illinois Co., a $1.9 billion-asset bank holding company, bought a small Illinois retail brokerage operation. And a year earlier, St. Louis-based Magna Group had bought a small regional brokerage.

But by and large, banks have taken a wait-and-see attitude toward buying into the securities business.

Many institutions, according to analysts, are waiting for congressional repeal of the Glass-Steagall Act. This would allow them to derive as much revenue as desired from investment banking businesses such as corporate bond and stock underwriting.

Without such federal relief, banks are restricted to deriving no more than 10% of their revenues from investment banking activities - effectively capping any aspiration.

Banks and bank equity analysts are also troubled by the earnings volatility of securities firms, a feature that causes these companies generally to trade at lower price-to-earnings multiples than the average bank company. It doesn't help matters that Mr. Martens doesn't even expect his unit to turn a profit until later this year.

Finally, many banks believe that these acquisitions are inherently risky because a firm's most talented producers may leave if they are dissatisfied with their new commercial banking overlords.

"The real assets of the brokerage firm are the people," said Fred Cummings, an analyst at Cleveland-based McDonald & Co. "You can lock up with certain people for long-term contracts, the senior people - but you can't lock up brokers."

Mr. Daberko countered that the recent acquisition created long-term strategic benefits that outweigh the limited risks.

He was particularly intrigued by the cross-selling potential that exists between the traditional corporate lending business and corporate securities underwriting.

"If this were just a financial acquisition, I would agree" with the criticism, he said.

Though the terms of the deal have never been disclosed, analysts believe National City paid no more than $30 million for Raffensperger. At that price, even Mr. Cummings, the McDonald & Co. analyst, conceded that the downside risk is limited.

"You can look at the purchase price of a deal like this as R-and-D expense," he said. "They are doing this in anticipation of Glass-Steagall being relaxed."

Indeed, some analysts have suggested that banks that buy brokerage units now are getting in at the right time. The passage of Glass-Steagall reform legislation - which they view as inevitable - would likely drive up the prices of firms like Raffensperger as banks scramble to plunge into the securities business.

Said Christopher Kotowski, an analyst at Oppenheimer & Co.: "Sooner or later, most brokers will be working for banks."

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