In its ill-fated attempt to acquire Wachovia Corp., SunTrust Banks Inc. lost not only its bid for an expanded commercial banking operation in the Southeast but also an opportunity to expand its retail brokerage franchise.
SunTrust needs an enhanced full-service retail brokerage capability, its chairman and chief executive, L. Phillip Humann, told American Banker last week. Thats the piece were missing. And one pitch in the three-month campaign to buy Wachovia was how well SunTrusts recently expanded investment banking presence would match up with Wachovias retail brokerage presence.
Now that Wachovia has decided to merge with First Union Corp., its back to the drawing board. But SunTrusts blueprint is unlikely to include any big brokerage acquisitions.
Dont think for a minute that that means we have to go buy somebody with 1,000 brokers, Mr. Humann said.
But SunTrust does plan to nearly double its army of 400 brokers within three to five years, by hiring individuals or teams, said R. Charles Shufeldt, its corporate and investment banking chief, in a separate interview. However, Mr. Shufeldt added, the expansion program could involve small broker-dealer acquisitions that were focused on high-net-worth individuals.
The $100 billion-asset banking company is really looking for a a full-service retail brokerage capability that can feed off of the capabilities of SunTrust Robinson-Humphrey, he added.
Robinson-Humphrey is the investment banking business that SunTrust bought in July from Citigroups Salomon Smith Barney for $11.9 million in cash. To integrate it, 90 to 100 people in New York, Boston, Nashville, and Atlanta have been laid off, a SunTrust spokeswoman said. They included analysts who covered industries the company has decided not to cover, as well as others in jobs eliminated to reduce overlap, she said.
SunTrust is determined to make the Robinson-Humphrey acquisition a success, Mr. Shufeldt said. Were going to be the first acquisition of an investment bank by a commercial bank that everybody says was an unqualified success, he said. I dont think theres one out there yet.
In fact, SunTrust itself has had some trouble of this kind. Its 1998 acquisition of Equitable Securities Corp., a Nashville investment firm, brought a number of integration problems.
Wed have to look back on it [the Equitable acquisition] as not a great success story, Mr. Shufeldt said. There were a lot of hurdles to overcome, and they proved more difficult than we thought.
Equitable focused on a smaller target market than SunTrust and had a difficult time breaking from the boutique mind-set to assimilate into a larger organization. The fit was not as good as we had hoped it was going to be between their business and their strengths and our franchise, Mr. Shufeldt said.
However, the purchase enabled SunTrust to become a section 20 underwriter of Tier 2 debt and equity faster than it could have done otherwise. And thanks to Equitables experience, SunTrust has been able to benefit from the increase in public debt issuance this year, Mr. Shufeldt said.
But he said he believes the Robinson-Humphrey integration will progress more smoothly. Robinson-Humphreys employees, unlike Equitables, are used to being part of a larger organization Citigroup, and American Express before that Mr. Shufeldt said. The brokers focus on emerging growth companies, which tend to be small and midcap companies that line up pretty well with SunTrusts middle-market focus.
That means there are and will be lots of opportunities to introduce companies to SunTrust Robinson-Humphrey, and for SunTrust Robinson-Humphrey to assist companies that the banking company currently does business with, either in the equity or the M&A side, Mr. Shufeldt said.
Katrina Blecher, a bank analyst at Sandler ONeill & Partners in New York, said SunTrust has a very good core banking division, but theyre a little light on fee-based revenues they get from investment products relative to their peer base. She commended the companys growth plans.
Richard X. Bove, a bank analyst at Raymond James & Associates, said it makes an enormous degree of sense to build out a retail brokerage system. A larger brokerage sales force will mesh with both the trust side of the bank and institutional business, he said.
David Boraks contributed to this story.
