Wachovia Wealth Management plans to follow its Charlotte parent's "horseshoe" geographic strategy as it enters markets in Texas, Arizona, and California.
Stanhope Kelly, the president of Wachovia Wealth Management, said it established itself through the parent's traditional markets along the East Coast, started to move into the Southwest over the past three years, and now is beginning to look westward.
"We have always leveraged off of Wachovia's brand and off of the Wachovia retail and commercial banking relationships," Mr. Kelly said in an interview. "As Wachovia has, through both its de novo strategy and through acquisitions, found its way into Texas and on to the West Coast in the last 36 months, we want to follow the general bank in that regard."
Analysts said that Wachovia Wealth Management will have a difficult time developing market share in Texas, Arizona, and California, because many wealth management providers already have established themselves in those states.
But Mr. Kelly said that by following the parent's commercial bankers into new markets and developing referrals through the Wachovia Client Partnership, which encourages referrals among the business lines of Wachovia, the unit is benefiting from cross-selling in new markets.
"That is what we did in Texas, and that is what we are doing in California," he said. "We want to get in when customers are just in the early stages of doing business with Wachovia."
Wachovia Corp. began to use this strategy to establish its wealth management operations in Manhattan in 2002, and now the unit has 100 employees in the market. Three years ago it used the strategy in Texas, and now it has 100 employees and wealth centers in Dallas, Houston, and San Antonio.
Wachovia Wealth Management, which has $140 billion of assets under administration and $80 billion in assets under management, plans to move into Arizona next and then "go further west," into California, Mr. Kelly said. "Southern California will really be our area of focus, initially. Already we have five employees in California, and we want to grow from there."
The parent company entered California in October of last year by acquiring the Oakland thrift company Golden West Financial Corp. The wealth management unit followed the commercial bank into California, Mr. Kelly said.
Golden West did not have a wealth management platform, so its customers were ripe for cross-selling, and Wachovia Wealth Management had a "key fundamental platform to build from," he said.
"We are still very early here with California," Mr. Kelly said. "We are building our team and will start with about 10 employees. We are focusing primarily in Los Angeles and beginning with a small team of wealth managers there. We will have many times that number of employees over time. Southern California and San Francisco will be our areas of principal focus initially. California is a big place. We will make significant investments there."
Wachovia Wealth Management wants to add people as it adds assets in Texas and Manhattan. In Texas, Mr. Kelly said, Wachovia plans to continue to focus on Dallas, Houston, and San Antonio in the near term, because "these are the markets of greatest appeal to us," but it may look beyond these markets down the line.
"We want to add to our head counts as the markets expand," he said. "A hundred employees in these markets are significant investments, but we will continue to grow as the brand and the business grows there. We will make an investment where businesses grow."
Wachovia has slowly been moving westward for years, Mr. Kelly said. Wachovia Securities has an established national operation, and the parent's automobile financing business has been doing business nationally for years.
"We don't have to teach people how to pronounce the brand name on the West Coast, like we did in other areas in the Northeast," he said. "We have good brand momentum, and we are really operating on a nationally platform right now. We are advertising nationally, and we have made good inroads to being truly a national bank."
Beyond the "horseshoe" strategy, Mr. Kelly said, there are other logical markets for his unit to consider. Golden West has offices in Phoenix and Denver, but wealth management operations in these markets will come later.
"There is not nearly the depth of offices in these markets that there are in Southern California," he said. "We are beginning to make steps into these markets. The brand is beginning to show up there. Commercial teams will be deployed there over the next 12 to 24 months, so we will see wealth management in those markets as well over that time. We want to finish investing in Texas, then invest in California, and then follow that momentum into Denver and Phoenix."
Mr. Kelly expects double-digit annual revenue growth in Texas, California, and Arizona. "We want to be in the black within 12 to 18 months, from an earnings perspective, with strong double-digit top-line and bottom-line results" over that period.
Analysts said Wachovia also may find opportunities to expand its wealth management business in the middle of the country after it completes its deal for the St. Louis brokerage A.G. Edwards & Co., but Mr. Kelly dismissed that idea.
"We tend to follow the bank, rather than the brokerage company," he said. "Our wealth management business traditionally has aligned with our commercial and wholesale banking businesses. If the bank moves to the Midwest, then we would follow, but we have our work cut out for us with these other markets first."
Wachovia Wealth Management will continue to expand within its parent's more traditional markets, Mr. Kelly said. The unit plans to add "a couple hundred" private bankers nationally over the next two to three years.
"Demographically, as people age, they tend to migrate to warmer, coastal areas along this horseshoe," he said. "There are several markets on the East Coast where there are great prospects for natural growth, including Florida and some of the metropolitan areas in the Northeast, but the real oppor market share is beyond these markets. … We think we have targeted geographies that make a lot of sense."
