New Path for Capital Markets at 1st Union

By Tarquinio, J. Alex | American Banker, April 1, 1999 | Go to article overview

New Path for Capital Markets at 1st Union


Tarquinio, J. Alex, American Banker


G. Kennedy Thompson is giving First Union Capital Markets a makeover.

On the prowl to buy a retail brokerage or investment banking boutique, Mr. Thompson says he plans to achieve most of his revenue growth this year through hiring.

"We are in most of the products and industries we need to be in now, but we could be bigger," he said in an interview Tuesday.

Fresh from his promotion to vice chairman last fall, Mr. Thompson was made sole chief of the capital markets division in January upon the retirement of his former co-leader, Jerry Schmitt.

Now he plans to trim about 500 of the 5,200 employees in the unit, or 9.6% of the work force, and use the savings to hire from 100 to 200 investment bankers, analysts, and merger and acquisition advisers.

By the time he is done reshaping the capital markets unit, its head count should shrink about 6%-roughly in line with the companywide 7% work force reduction First Union announced in February.

But Mr. Thompson said he expects a 10% rise in the unit's expense base, because the investment bankers and analysts he hopes to recruit will require bigger compensation packages.

This plan conforms with earlier remarks by John Georgius, First Union's president, who said that much of the $300 million the bank hopes to save from nearly 6,000 job cuts this year would be redirected to capital markets and wealth management.

About 300 people in First Union's capital markets unit were handed pink slips in February and March as part of the restructuring, with most of the cuts coming from municipal finance, corporate finance, leasing, and support staff, according to Mr. Thompson.

"We pared back the staff in areas that were nonrevenue producing," he said.

About 200 more will be dropped from the payroll if Mr. Thompson succeeds in selling the unit's factoring group, as he hopes to do this year.

Until now the capital markets group has been growing through hiring, acquisitions, and transferred business lines from the bank. Mr. Schmitt started the unit with 700 people in 1994.

He and Mr. Thompson joined the Charlotte bank in the 1970s and climbed the commercial banking ladder. Mr. Thompson came over to co-head capital markets in 1996.

Sally Pope Davis, an analyst with Goldman, Sachs & Co., said she is not surprised by Mr. Thompson's rapid rise.

"I think he is someone to keep an eye on from the perspective of the whole corporation," she said. "He's a good builder and very quick on the uptake."

Most U.S. banking companies acquire their capital markets executives through takeovers of large securities firms or by recruiting from Wall Street. But Mr. Thompson said he does not view his years in commercial banking as a disadvantage.

"I don't believe you need to know everything about securitizing a mortgage to manage the capital markets business," the 48-year-old North Carolina native said.

He aims to take First Union's securities business global, and said it is already more national in scope than many people realize. Though First Union's corporate lending relationships are concentrated on the Eastern seaboard, about half of the unit's revenues come from outside the bank's regional base, Mr. Thompson said.

In an attempt to boost the investment banking business outside the bank's core region, First Union is plowing $100 million into a splashy prime-time television ad campaign, touting such niche products as M&A advisory. Such ads are a rarity even among Wall Street firms.

CoreStates Financial Corp. contributed to a stunning 263% rise in the so-called "traditional banking" part of the unit's business, which includes interest income from corporate and asset-based lending. First Union acquired the Philadelphia-based banking company last year and rolled some of it into the capital markets unit.

Based on 1997 pro forma figures for both banking companies, revenues for this segment of the unit, which also includes fees from correspondent banking, would have risen 20% to $1. …

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