NationsBank Shifts to Lucrative Capital Markets

Article excerpt

CHARLOTTE, N.C. -- NationsBank Corp. is picking its fights with Wall Street more carefully as it looks to boost profit from corporate finance.

Three years after it broke into capital markets, the fourth- largest U.S. bank is pulling back from less-profitable areas, such as arranging loans and underwriting bonds for government agencies and investment-grade corporations.

Instead, it's placing its bets on other, more lucrative capital markets businesses, such as arranging loans and selling bonds for junk-rated companies, and pondering a move to help private companies sell shares to the public, an activity historically controlled by Wall Street investment banks. "We're committed to this business," said Thomas White, head of investment grade, high-yield and emerging market corporate finance at NationsBanc Capital Markets. "We don't intend to compete with Morgan Stanley and Merrill Lynch in every area. We'll compete where we can win." Charlotte-based NationsBank, best known for its sprawling 16-state retail banking empire including Oklahoma, built its capital markets business from scratch in 1994, joining other U.S. banks taking on Wall Street firms. Banks like capital markets businesses because they generate fees and take advantage of the their relationships they already have with small and mid-sized companies. Many big commercial banks have poked at the decades-old legal walls restricting their involvement in investment banking. More and more are considering buying investment banks after Bankers Trust New York Corp. agreed last month to acquire Alex. Brown & Sons. If approved by regulators, that combination would signal a new era for investment and commercial banking under one roof. "This acquisition focused us more seriously on our strategies," said White, who replaced John Griff as head of investment grade in March. NationsBank would rather buy than build its equities underwriting business, White said. He declined to name prospective takeover targets. "We're looking very aggressively," White said, stopping short of saying how soon the company would make a purchase. "We've always been disciplined and opportunistic in acquiring banks, and we'll take the same approach getting into the equities business." One incentive to move into equity underwriting is the concern that the company could lose the other business it does with corporate customers if it can't help them when they decide to go public. NationsBank's move to cut back parts of its capital markets business reflects the company's strategy of setting goals that demand every business pull its own weight, or face sale. The bank is reducing its lower-margin businesses, such as arranging sales of municipal, government and corporate bonds. The bank recently said it's considering selling its primary dealer business, which trades securities issued by the U.S. Treasury and other government agencies. The bank, which declined to disclose profits for individual capital markets businesses, said its global finance division reported net income of $186 million on $597 million in revenue, and a 19 percent return on equity. …