CHICAGO - As Wells Fargo & Co. and Wachovia Corp. fuse their municipal operations into one this year, the bank expects to join the ranks of regional names to crack the top 10 list of senior managers, newly named municipal manager Phil Smith said last week.
Prior to the closing of Wells' acquisition of Wachovia at the end of 2008, both firms had hired in the last year public finance professionals displaced amid the steep layoffs and exit from the municipal business of some Wall Street firms.
"Who are the firms going to be that step up?" Smith said. "We believe we are well-positioned to be one."
"To have the opportunity to lead this team is a great one. There has been a strong commitment from both firms to build their municipal businesses," added Smith, 47, who was named late last week to lead the municipal products and government banking units that will fall under the securities investment group of the merged firms. "When you look at our platform, by any measure, it's one of the best in terms of our capabilities."
The combined firms employ a municipal staff of roughly 200 including banking, sales, trading, analytical, and derivatives professionals, including about 80 from Wells Fargo's broker-dealer Wells Fargo Brokerage Services LLC and 120 from Wachovia's unit Wachovia Securities.
Both have been in growth mode in certain regions, with Wachovia last October announcing the hiring of 11 in Florida and the Northeast while Wells Fargo has steadily hired and opened new offices in recent years with the goal of doubling its revenues by 2010.
Smith, who is based in Charlotte, previously had served as Wachovia's head of government and institutional banking and co-head of municipal products. He joined the firm last February after a two-decade long run at the bank's hometown rival Bank of America Corp. which he joined fresh from leaving the United States Army where he served as a captain in the artillery.
Together, Wells Fargo and Wachovia operate public finance offices in all but 11 states, with Wells Fargo concentrated in the Midwest, West, and Southwest and Wachovia concentrated in the East, South, and Midwest. Wachovia's base grew following its acquisition in 2007 of the former A.G. Edwards & Sons, which was based in St. Louis.
In addition to Wells Fargo's commercial banking strength and each firm's efforts to expand their tax-exempt capital markets business, Smith said the combined firms offer strong distribution capabilities in the institutional and middle markets and on the retail side with 16,000 brokers. The low- to mid-double-A rated bank also provides letters of credit and derivatives products.
Neither firm ranked in the top 10 among senior managers overall last year, according to Thomson Reuters. Their combined operations last year, however, would have moved the firm into the ninth spot among senior managers, leading nearly $12.8 billion of debt in 498 deals. The firm would have been similarly ranked for at least the last five years.
With operations combined, the firm also would have ranked in the lower top 10 in the Midwest, Northeast, and Southeast. The merged broker-dealer will face competition from other regional firms expecting to capitalize on the dramatically altered Wall Street investment banking landscape, but there's opportunity because of the loss of one name from the top 10 - UBS Securities LLC - and the ongoing merger of two others Banc of America Securities and Merrill Lynch & Co.
Smith sees rewards for the firm by providing strong support for client relationships - both issuers and institutional investors. While Wells Fargo has yet to commit to any significant expansion of its letter of credit business, Smith said he sees the potential for added capacity on that front.
Wells Fargo Bank ranked sixth last year among LOC providers and Wachovia Bank ranked third. Combined, the firms would have ranked second, providing 177 LOCs on $8.6 billion of debt.
"There will be even more demand for liquidity in 2009," Smith said, as lower-rated issuers turn to floating-rate debt as a more affordable option.
The turmoil also presents the firm with an opportunity to build its relationships with key institutional clients by providing more secondary market capital support. "You will get rewarded now," by serving as a strong trading partner to institutional buyers, he said.
Smith said he expects to settle on a business model in the coming months and leadership posts will be decided. "We've started the process of getting to know one another and reviewing our business practices," he said. "We have a lot similarities, but also differences in our capital markets structures."
Smith had served as co-head of municipals at Wachovia alongside Robin Sheth. Amelia Bond has managed Wachovia's public finance banking group, while William Gabler managed public finance banking at Wells Fargo and reported to John McCune, who served as president of the broker-dealer.
Other staffing decisions also are yet to be decided. Smith said in any union of two firms, layoffs are a possibility, but he said there is little overlap in the firm's regional presence.
No decisions have yet been made on the broker-dealer's headquarters or name, although it will be aimed at promoting the Wells Fargo brand.
While Wells Fargo's commercial operations are based in San Francisco, its brokerage was largely based in Minneapolis following its acquisition of Norwest Corp. in 1998.
Wachovia's commercial operations are based in Charlotte, but its brokerage operations were headquartered in St. Louis after its acquisition of A.G. Edwards in 2007, although that office has since been cut in staff and hit with substantial defections.
Wells Fargo's acquisition of Wachovia was announced last fall after Wells trumped Citi's government-backed bid to purchase Wachovia with its own offer that did not rely on government support.
Wells Fargo, which received $25 billion under the federal government's Troubled Asset Relief Program, was considered to be more solidly positioned to weather the collapse of the subprime mortgage market and recessionary blows when it acquired Wachovia.
Some analysts have now raised questions over the wisdom of acquiring the more troubled Wachovia. Wells reported a $2.55 billion loss for the fourth quarter, due to losses associated with its acquisition. Wachovia lost $11.2 billion in the quarter. Wells Fargo has countered that the acquisition was a long-term strategic decision.
