Wachovia Corp. is introducing its way of doing commercial banking to California and neighboring states as it prepares a major branch-building program in the West that will capitalize on two California acquisitions last year.
Though the Charlotte company has said that branch-building would boost its retail presence in the West, the new offices should also help it establish a commercial banking foothold there, said Peter Jones, the head of Wachovia's banking operations in the western United States.
"Those efforts are complementary. When you start doing wholesale business, you need more branches," he said in a Jan. 4 interview. "Those businesses want you close to them for [dropping off] deposits and to allow their employees to do business."
Last summer Wachovia created two business banking teams and a wholesale team in Los Angeles to capitalize on its March purchase of Westcorp Inc. in Irvine, Mr. Jones said. And the $698 billion-asset company plans to open an Oakland office this year in connection with its integration of Golden West Financial Corp., which it bought in October.
Mr. Jones said Wachovia also is interested in sending commercial banking teams to markets such as Phoenix, where he said bankers could be in place by early next year. He declined to say how many bankers Wachovia has hired for its commercial banking initiative or how many teams would be needed in any single market.
"Golden West did not have a fleshed out wholesale business, so these are new operations that we're introducing out there," he said.
Wachovia defines its business banking clients as companies with $3 million to $25 million of annual sales; its wholesale clients typically have $25 million to $250 million.
And Wachovia is taking both categories of client into consideration as it decides when and where to build branches. It picked up 19 branches in southern California when it bought Westcorp and more than 120 in the state from Golden West, which had 285 sites in all.
Golden West provided a solid group of branches in California's suburban markets, Mr. Jones said, but Wachovia must add to these. "We are delighted in their locations, … but they don't have as many branches as we traditionally have had" in Wachovia's markets. The company got "limited locations" in urban areas such as downtown San Francisco, he said, where it plans to open a branch this year.
Golden West used its branches largely for deposit gathering. In contrast, Wachovia needs its branches to support revenue-building activities such as commercial banking, Mr. Jones said. Having more downtown branches would help bankers court businesses that need convenient locations, he said.
Thus, aggressive branch building is planned.
Wachovia executives have said they expect to add 200 branches in California from now through early 2011. Mr. Jones estimated that about half of these could be operating by late next year. Wachovia has said it plans to open 30 branches in Southern California this year. The target for next year is to add as many as 70 offices statewide, evenly split between northern and southern markets.
"It is a pretty significant undertaking," said Mr. Jones, who previously supervised branching efforts in Texas. "That is at least as many as the most we opened in Texas in any single year. So far we have been able to meet the pace [of planned openings] that we thought we would have."
Mr. Jones said it is more challenging to find sites in San Francisco than in Texas. "Dallas, for example, is growing out from downtown, so there is lots of land. San Francisco is a little more challenging, so we're trying to be creative." In addition to large cities in the state, he said, Wachovia is examining opportunities to build in "smaller towns with a lot of density."
He also said it "makes sense" to double the existing Arizona branch network, to 30 offices, by early 2009, though the company would prefer to put commercial lenders in place before then. He also mentioned Las Vegas as a market primed for a Wachovia entry.
"When you start a wholesale business you need more branches," he said. "Opening 60 to 80 branches a year is a pretty significant undertaking. We've never opened that many in one state before, but we will continue that effort until we get the density that we want. … We want to make people feel as though we really have arrived."
Wall Street will be watching what Wachovia does to build on Golden West's network. A recurring criticism among analysts since the $24 billion deal was announced last May has cited the location and condition of the thrift company's branches.
This criticism has frustrated G. Kennedy Thompson, Wachovia's chairman, president, and chief executive. He has repeatedly defended the quality of Golden West's branches. During Goldman Sachs Group Inc.'s Financial Services CEO Conference on Dec. 13, he again touted the network as possessing "a number of well-located, well-constructed, attractive branches in affluent areas."
Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, said in an interview Jan. 8 that, though Golden West's branches and infrastructure were not ideal for commercial banking, the thrift company had "a number of fine branches and offered Wachovia the best way to enter California."
Anthony Polini, an analyst at Soleil Securities Corp., said Wachovia's commercial banking expansion makes sense as it looks to build on its West Coast acquisitions. "California is a good market on the commercial side," he said in an interview Jan. 8. "There is rational competition and an opportunity for them to take business away there."
Moreover, he said, Wachovia is making the right move by adding branches in urban markets. "You need key branches in key locations in order to build a commercial platform," he said. "They do certainly tend to run hand in hand."
