Wachovia Corp. plans to end a year-old mortgage joint venture between A.G. Edwards & Sons Inc. and Wells Fargo & Co. when it buys the St. Louis brokerage firm this year.
Thomas Wurtz, the chief financial officer for the $720 billion-asset Charlotte company, said in an interview last week that there would be no need for the venture, Wells Fargo Ventures LLC, since Wachovia would offer mortgages directly to the brokerage firm's clients.
Wachovia expects to generate revenue from selling banking services through A.G. Edwards' offices, he said, though the company does not use revenue expectations in its deal calculations.
"When we began talking about this particular deal, we identified some of the opportunities that presented themselves," Mr. Wurtz said. "That obviously includes our ability to offer consumer products to their clients."
The venture offers first- and second-home mortgages, construction loans, home equity loans, and lines of credit to A.G. Edwards clients. The loans are sold to Wells and other investors, with A.G. Edwards and Wells dividing up the costs and profits.
A.G. Edwards has a 49.9% stake in the venture, according to Wachovia's July 6 application with the Federal Reserve Board to approve the purchase of the thrift unit A.G. Edwards Trust Co. FSB. Wachovia has said it expects to complete the $6.8 billion acquisition A.G. Edwards & Sons next quarter. The deal was announced May 31.
Wachovia has dedicated an increasing amount of resources to promoting loans to its brokerage clients. In 2003 the company created the Wachovia Client Partnership, an internal effort to facilitate sales of products and services across business lines. Loan production for Wachovia Securities was close to $4 billion last year, and executives expect the unit to double that volume this year.
Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said in an interview Monday that the unit is generating an impressive amount of volume, and that its efforts could be buoyed by the mortgage expertise Wachovia gained from last year's acquisition of the Oakland, Calif., thrift company Golden West Financial Corp.
"They are very confident in their retail distribution model," he said. "When you look at their national capabilities with mortgages, it blends in quite nicely with the brokerage business."
Mr. Fitzsimmons said the loans should have better credit quality than those made by the retail bank, given Wachovia's ability to track the client's net worth over several years. A.G. Edwards also would give Wachovia more reach in high-growth markets — 25% of the brokerage firm's revenue comes from California, Florida, and Texas.
However, analysts said making loans to A.G. Edwards clients could be lower on Wachovia's priority list than cutting costs and sweeping cash balances from money market funds into insured deposit accounts. The main reason: It may take time for Wachovia to implement a sales culture at A.G. Edwards.
"The A.G. Edwards sales force does not have the same sales mentality" as Wachovia Securities, Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets, said in an interview Monday. "The DNA of a broker is driven by, 'How am I going to get paid?' "
A.G. Edwards has shown signs that it wants to offer more banking services, as demonstrated by its venture with Wells Fargo. Calls to A.G. Edwards seeking information on the venture were not immediately returned. A Wells spokesman said that the venture will continue to operate for the time being. He would not say how much revenue it has generated over the past year.
