Wells Fargo & Co.'s $12.7 billion purchase of Wachovia Corp., meant to bolster deposits and mortgage operations, has deepened the company's commitment to investment banking as corporate stock and bond sales surge.
The San Francisco banking company was ranked 13th in the second quarter among underwriters of U.S. bonds and 10th in global equity offerings, according to data compiled by Bloomberg.
Last year, before the Wachovia purchase, Wells Fargo failed to crack the top 30 in either category.
Investment banking revenue jumped 29% in the second quarter from the first three months of 2009.
Richard Kovacevich, Wells Fargo's chairman, said in 2005 that the company's consumer-oriented culture was "incompatible" with an investment bank, and Bruce Helsel, an executive vice president, said in March 2008 that the businesses would be difficult to integrate. This was before Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. collapsed or were sold, allowing Wells Fargo to expand, Tim Sloan, an executive vice president, said in an interview last week.
"There are just fewer competitors out there," said Sloan, the head of the wholesale banking division's commercial, real estate and specialized financial services group in Los Angeles.
"We're out pitching business every day."
This month the Wachovia Securities brand was changed to Wells Fargo Securities, a unit that includes the acquired investment banking and capital markets divisions as well as Barrington Associates, a Los Angeles investment bank that Wells bought three years ago.
Former Wachovia executives Robert Engel and Jonathan Weiss were appointed in January to lead the investment banking and capital markets divisions.
The 2,800-person unit is part of Wells' wholesale banking group, which generated $5.2 billion in second-quarter revenue, more than double a year earlier, before the Wachovia deal. Wholesale banking accounted for 23% of Wells Fargo's revenue in the period.
Sloan, who oversees 25 businesses and has worked at Wells Fargo for 22 years, said the company is making its first significant push into investment banking by offering more services to existing customers.
Wells was able to win underwriting services for Oracle Corp. because it already provided treasury management and investment products to the Redwood City, Calif., software company, he said.
The company participated in two deals Tuesday, the biggest acquisitions it has been involved with this year.
It advised Sprint Nextel Corp. on its agreement to buy out Virgin Mobile USA Inc. for $420 million and worked on Targa Resources Partners LP's agreement to buy its founder's natural gas liquids business for $530 million.
The bank is also reviving equity research, a division that Sloan eliminated in 2005 because "we didn't have a large enough investment banking or sales and trading presence to justify it," he said. In buying Wachovia, Wells inherited A.G. Edwards Inc., a St. Louis securities company with a research division that Wachovia bought for $6.5 billion in 2007.
Wells Fargo now has 65 research analysts covering equity, fixed-income and structured products, spokeswoman Elise Wilkinson said.
Research will focus on areas where the company has the biggest lending presence, Sloan said.
The bank's financial commitment to the securities business will deepen when it buys back a stake in the unit from Prudential Financial Inc., which last month exercised an option to sell its minority stake in Wells Fargo Advisors. Prudential helped create Wachovia Securities in 2003.
The sale is expected to close by Jan. 1.
