Wells Fargo & Co., whose previous leader once said investment banking was a bad fit with its consumer culture, is seeking a bigger share of the U.S. equity underwriting business dominated by JPMorgan Chase & Co. and Goldman Sachs Group Inc.
The expansion could propel Wells into the top tier of equity underwriters, according to Rob Engel and Jonathan Weiss, who co-heads investment banking at the San Francisco-based company. The addition of Wachovia Corp.'s securities unit helped Wells rank 10th in 2009 U.S. equity offerings, its best showing ever, and eighth so far this year.
"The opportunities are immense," Weiss said in a Feb. 10 interview from New York. "We have all the talent and capabilities, and certainly the client base, to be a top-five equity house."
Former Chairman Richard Kovacevich said in 2005 that investment banking was "incompatible" with the culture of a lender that gets 70% of its profit from consumers and small businesses. That was before he led the 2008 purchase of Wachovia and its securities units, and then turned the firm over to Chief Executive Officer John Stumpf.
Last year's efforts were concentrated in two industries: More than half the $4.33 billion Wells helped to raise was tied to real estate investment trusts and limited partnerships for oil and gas and pipelines, according to data compiled by Bloomberg. Wells has helped to raise about $741.6 million in 15 deals this year, the data shows.
That's not enough to displace JPMorgan Chase, ranked No. 1 last year with $33.7 billion in U.S. equity underwriting. The company is leading in 2010 by managing at least 22 equity sales that collected $3.1 billion.
Goldman was second last year with $31.5 billion; this year the firm helped raise at least $840 million across 10 deals, slipping to sixth place, according to Bloomberg data.
JPMorgan Chase spokeswoman Tasha Pelio and Goldman Sachs spokeswoman Andrea Rachman declined to comment. Both firms are based in New York.
"Breaking into the top tier of investment banking has never been easy," said Bruce Foerster, president of South Beach Capital Markets in Miami and former executive at Lehman Brothers Holdings Inc. Costs are high for recruiting bankers away from rival firms, he said. As for the brokerage staff, ranked third with almost 15,000 advisers, brokers throughout the industry are showing more independence and may be less willing to sell equity deals managed by the parent company, Foerster said.
The bank aims to provide customers with more services and is not looking to build market share just for the sake of it, Weiss said. Companies that have loans with the bank or use treasury management services or corporate checking accounts may turn to Wells Fargo for investment banking business, Engel said.
Wells does not disclose investment banking revenue or earnings, spokeswoman Elise Wilkinson said in a Feb. 22 e-mail message. The unit is part of the wholesale banking group, which earned $3.9 billion last year, almost triple 2008's total.
The burden of expanding the business will fall in part on Andy Sanford, who joined Wachovia before its collapse and now runs the combined equity capital markets business.
In theory, Oppenheimer & Co. analyst Chris Kotowski said, Wells could build its equity underwriting business by taking advantage of its corporate relationships. In reality, he said, that is unlikely. "The real synergies between investment banking and commercial banking generally are fairly modest," he said.
"I don't see Wells becoming a top-five equity underwriter," said Todd Hagerman, an analyst in New York with Collins Stewart PLC. "It's not in their DNA."