Wells Fargo & Co. is betting its securities business can thrive 600 miles from New York in the same city Bank of Americas traders largely abandoned.
The first of 900 Wells Fargo employees moved last month into a new space on two floors of a 48-story tower in Charlotte, N.C. From their windows, they can see the complex a half-mile away where Bank of America built its own facility less than a decade ago for about 550 traders and investment bankers. Most have since been fired or moved to New York.
Both banks are vying to be winners in bond trading even as margins collapse and rivals such as UBS AG quit the field. Wells Fargo is out to prove the business doesnt need to be in New York, with John Shrewsberry, president of the firms securities unit, counting on lifestyle perks, cheaper housing and the San Francisco banks status as a growing company to lure talented people.
On a day-by-day basis in terms of information flow, its all electronic, and were as wired as anyone else, Shrewsberry said in an interview. People dont run out of their buildings in downtown or midtown Manhattan and meet in the street to talk about markets.
To build the business, Wells Fargo CEO John Stumpf is relying on a corps of traders added in the 2008 acquisition of Wachovia. About 1,500 bond-trading and investment-banking employees reside in Charlotte. That compares with about 700 in New York, where the equities business is based.
Bank of America moved many traders out of Charlotte, where the entire company is based, after the lenders 2009 purchase of New York-based Merrill Lynch & Co., said a person with direct knowledge of the lender who asked not to be identified because he wasnt authorized to speak publicly.
The volatile nature of investment banking confounded former Bank of America CEO Kenneth Lewis as he tried to build a securities operation. In 2006, his corporate and investment bank posted $6.03 billion in profit, only to see it plunge 91 percent a year later amid $5.6 billion in losses tied to trading and mortgage securities.
Ive had all the fun I can stand in investment banking, Lewis said Oct. 18, 2007. He blamed bad judgment by his traders and announced plans to scale back the business, cutting 3,000 jobs. A year later, Lewis reversed course by agreeing to buy Merrill Lynch for about $50 billion in stock – only to see some of its top executives and brokers leave as analysts expressed concern about a brewing culture clash.
Wachovia faced its own challenges before mortgage losses forced the sale of the Charlotte-based bank to Wells Fargo in 2008. Wachovias investment bank was slammed by $1.52 billion in trading-account losses in the first nine months of that year.
Staying in Charlotte was more attractive than moving all of those people someplace else or starting over, which I never even entertained, said Shrewsberry, whos based in San Francisco. Wachovia and now Wells Fargo, and separately Bank of America back in the day, took this other approach of making Charlotte a banking headquarters, and weve benefited from that.
Wells Fargo became the fourth-largest U.S. bank with a focus on consumers by building the biggest branch network. The lender hasnt posted an annual loss in more than a decade. Executives have broadened the strategy to include investment banking as nine global securities firms including JPMorgan Chase & Co. and Citigroup Inc. announced more than 32,000 job cuts in 2012, according to data compiled by Bloomberg. UBS said it would close most of its fixed-income operation.
Fixed-income trading has generated profit margins of about 25 percent in recent years, and that may fall to 19 percent as new regulations related to derivatives clearing and a ban on proprietary trading are implemented, Sanford C. Bernstein & Co. analysts led by Brad Hintz said in a November note to clients.
Investment-banking revenue at Wells Fargo rose 30 percent in 2012 from a year earlier, and the firm is inching up the league tables, even as Stumpf has said he couldnt care less about rankings. Among U.S. bond underwriters, the bank was 10th in 2012, excluding its own deals, up from 13th the year before, Bloomberg data show. Bank of America ranked third the past two years.
The business could account for 10 percent of Wells Fargos total revenue in two to three years, according to a May estimate from Deutsche Bank. At competitors, the figure is 20 percent or more.