One Valley Bank of Charleston, W.Va., is trying to stake a claim to the big-bank-dominated securities business by establishing a broker-dealer subsidiary.
The move, unusual for a bank with only $3.6 billion of assets, will position the company well if the Glass-Steagall Act is repealed, analysts said.
"If you're a One Valley, you have to make the decision to either get off the porch and run with the big dogs or stay at home," said Alex Hart, equity analyst at Ferris, Baker Watts Inc., in Baltimore. "It looks like they've decided to run with the big dogs."
The bank has operated a discount brokerage since 1981, but the decision to formally establish a securities affiliate shows the bank thinks it has a bright future in this business, analysts said.
During the past two and a half years, One Valley's mutual fund business has grown to more than $40 million, proving there is a strong demand for these types of products, said J. Randy Valentine, president of the new affiliate.
"(The decision) was pretty much customer driven," Mr. Valentine said. "We felt it was necessary to address our customers' needs, and the fact that our competitors are already doing this also factored into it."
Investment product buyers are no longer just large depositors, but include customers of all types and with a variety of financial needs, he added.
Another factor behind the decision was the customer confusion surrounding investment product sales from banks, Mr. Valentine said. Because these investments often are sold out of the banks themselves, customers sometimes mistakenly believe they are federally insured.
Offering these services from an entirely separate unit helps to solve this problem, Mr. Valentine said.
The new subsidiary also will give the company a head start over similarly sized competitors in the evolution of commercial banks into total financial service companies, analysts said.
"I have not seen this at a bank of that size," said Mr. Hart. "But it is reasonable that they would do this, and that down the road they could acquire a firm like mine."
The "big dogs" that One Valley is challenging are Columbus, Ohio giants Huntington Bancshares and Banc One Corp., as well as the numerous national securities firms with offices in Charleston. Although One Valley is but a fraction of the size of these competitors, Mr. Valentine said he believes it will benefit from being the only local company doing business in the state.
One of the mutual funds One Valley offers will consist only of West Virginia-based securities, and all of them will be no-load funds, meaning that there are no sales charges, Mr. Valentine said.
The new subsidiary, which opened in May, consists of 40 employees who were trained in-house by One Valley. Construction is still under way at the main office for the unit, which the bank hopes will operate from the bank's 79 offices statewide. It expects to break even in three years.