Tucked away in its acquisition of Salt Lake City-based First Security Corp. was a business Wells Fargo & Co. never knew it wanted.

First Security owned Van Kasper, a 32-year-old third-tier San Francisco investment banking boutique. In recent days, Wells Fargo executives have been trumpeting the addition of the business as a great opportunity to cross-sell Van Kasper's initial public offerings to the bank's roster of wealthy private clients.

Yet, just a few months ago, Wells Fargo executives were not exactly enthusiastic about investment banking, even though they acknowledge having explored ways of bringing IPOs to private clients. In a September interview, Wells Fargo vice chairman and chief operating officer Leslie S. Biller said that despite the recent convergence among banks and large Wall Street firms, "investment banking is not our cup of tea."

"Where we see opportunities is with consumers and small and medium-size businesses," he said.

Mr. Biller was reiterating the often repeated remarks of chief executive officer Richard Kovacevich that a large acquisition - such as Chase Manhattan Corp.'s pending purchase of J.P. Morgan & Co. or NationsBank Corp.'s purchase of Montgomery Securities in 1997 - was not in his future.

A similar statement made by Mr. Kovacevich in Forbes magazine triggered some candid questions by Van Kasper employees about the firm's future with the bank when Mr. Kovacevich addressed them in a conference call last week. During that call, Mr. Kovacevich said he had been misquoted and expressed delight at the addition of Van Kasper.

Dennis Mooradian, president of Wells Fargo's private client services and one of the two executives who is managing the business (along with its president and chief executive officer, F. Van Kasper), said the bank is not absorbing Van Kasper as the result of a strategic push in capital markets.

"You might say we back-doored into the investment banking business," Mr. Mooradian said in an interview. "We've never had that opportunity."

Wells Fargo said it is moving quickly to implant its cross-referral system on both the retail and corporate sides of First Security. Plans are already in place to put a Wells Fargo trust officer and a private banker in Van Kasper's San Diego offices. Bruce Emmeluth, head of corporate finance at Van Kasper, said some joint investment banking deals "are already in the pipeline."

The 380-person firm has brought on at least seven investment bankers in anticipation of its merger. Late last week it announced the hiring of Robert L. Quist, 47, formerly with Merrill Lynch & Co.'s venture capital business development group, as a managing director to head technology investment banking. It also hired Michael D. Brown, 59, head of mergers and acquisitions at Sutro & Co., as a managing director in Los Angeles.

Van Kasper has lost one high-ranking member already. Early last month D. Jonathan Merriman jumped to a customer, RateXchange Corp., to be president and chief executive officer.

Tim Sloan, head of capital markets at Wells Fargo, said that after an initial rollout of Van Kasper's investment banking products on the West Coast he expects the business will be offered throughout the Wells Fargo network. Van Kasper has grown accustomed to using referrals from commercial bankers. First Security was responsible for 10% to 20% of Van Kasper's growth over the past two years, said Mr. Van Kasper in an interview.

With 12 brokerage and investment banking offices in the West, mostly in California, Van Kasper garners more of its revenues from investment banking than from brokerage. Management sold the independent firm to First Security two years ago, citing the need to link up with a better-capitalized partner.

Still, Van Kasper has never made it into the ranks of the large West Coast investment banks such as Hambrecht & Quist or Robertson Stephens, and some question whether San Francisco-based Wells Fargo is just dressing it up for a sale.

"Wells wants to be No. 1, 2, and 3 in any market it's in," said one San Francisco-based investment banker. Given Van Kasper's share of the investment banking market, "Wells may be trying to fix it so they can get a better price," the source said.

Van Kasper has been on the sidelines for most lead-managed roles for U.S. initial public offerings this year. It led one deal with proceeds of $8.8 million during the first nine months. As an IPO co-manager it fared better, leading nine deals with proceeds of $164 million.

Even with steady deal flow, Van Kasper's output pales in comparison to the appetite that Wells Fargo's private clients and corporate customers have for capital markets products and services, analysts said. "Either they have to grow it, pump a lot of money into it to give it critical mass, or not, and just feed some smaller business customers to it," said Campbell Chaney, a banking analyst at Sutro & Co. "My guess is that they'll wait and see if they want to keep it."

Mr. Van Kasper downplays the idea that Wells Fargo might decide to sell the firm he founded. "Serendipity brings you together, but then you have months and months to decide if it's a strategic fit," he said one week ago, on the day Wells Fargo completed its purchase of First Security. "This is not a passive decision by Wells Fargo."

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