Once again it’s wait and see for the brokerage that was A.G. Edwards and its 4,800 St. Louis employees.
On the plus side, Wells Fargo & Co., based in San Francisco, has pledged to keep the brokerage in St. Louis; it is a relatively stable new owner known for smooth acquisition transitions; and the Wachovia Securities brokerage division has put significant problems and expenses behind it.
But more problems undoubtedly lie ahead, including the possibility of layoffs, office consolidations and brokers who are fed up with corporate changeovers.
Even the leadership is uncertain. It hasn’t been decided who will head the brokerage in St. Louis under Wells Fargo.
Asked whether top management, including Danny Ludeman, president and chief executive of Wachovia Securities, would remain here, Kathleen Golden, Wells Fargo’s vice president of public relations, said, “We announced that Wachovia Securities headquarters would remain in St. Louis, but beyond that we have not made any subsequent announcements about the business.” Ludeman was not available for comment.
Wells Fargo announced that Ludeman’s boss, David Carroll, who is based in Charlotte, N.C., is the only Wachovia executive who will report directly to Wells Fargo Chief Executive John Stumpf. Carroll has been running Wachovia Capital Management, which includes the brokerage,
“David (Carroll) has not named his management team yet and will be meeting about that over the next few weeks,” said Teresa Dougherty, a Wachovia spokeswoman.
“If you are under David Carroll’s umbrella, you’re probably in pretty good shape,” said Charlie Forrest, a senior vice president at Stern Brothers & Co. He retired in 2005 from A.G. Edwards, where he headed the bond department and national public finance practice. “It looks good for the old A.G. Edwards and for St. Louis.”
Still, former A.G. Edwards financial advisers, who worked for a company that had been led with stability for generations by Edwards family members, may be leery about a second new owner within 18 months.
“The real challenge to Wells and to the legacy A.G. Edwards brokers is: Having changed their business cards once recently, do they want to change them again?” said Brad Hintz, an analyst with Sanford Bernstein in New York who followed A.G. Edwards for years. “As a broker, you want stability. You may be saying to yourself, ‘Why don’t I go out and hang my own shingle?’”
Golden said Wells Fargo had no statement about broker retention.
Forrest said employees at the brokerage have told him that Wells Fargo looks like a better long-term partner than Wachovia. “Wells is a very strong bank and they keep costs low,” he said.
Gerald Sparrow of Sparrow Capital Management in St. Louis used to work for Strong Funds in Menomonee Falls, Wis., which was acquired by Wells Fargo a few years ago. “The Wells Fargo management philosophy is the one Warren Buffett embraces — they let people run their own show as long as they know what they are doing. I think it’s a good partner to have.”
And unlike Wachovia when it bought A.G. Edwards in 2007, Wells Fargo has only a small bank brokerage, so cultural integration may be less of a problem. Many A.G. Edwards executives and brokers left the company after the sale to Wachovia.
The brokers at Wachovia are waiting to find out what size bonuses they will be offered to stay with Wells Fargo. It’s usually a percentage of the fees and commissions that the broker produced over the last 12 months. Executives at recruiting firms have said the amounts likely will be modest, but so are expectations, given the economy and the fact that former A.G. Edwards brokers received bonuses to stay with Wachovia after that takeover.
Forrest believes the brokerage’s top management will be located in St. Louis. “Banks like to have everyone in one spot, but a brokerage is a different kind of operation,” he said. “Brokers like ready access to top management.”
As for possible layoffs, “There will be layoffs across the board in support staff, mutual funds, and corporate and public finance,” said Wistar Holt, a principal of Holt & Shapard Capital Management and former Wall Street broker. “I’d be shocked if they didn’t close and consolidate offices. You’ll see that in every Wall Street firm.”
Dougherty at Wachovia said, “We haven’t heard anything about that.”
“Though there may be layoffs due to market conditions, the transitions are usually pretty smooth with Wells Fargo,” Sparrow said.
Wachovia Corp. reported a $24 billion loss for the quarter ended Sept. 30, compared with a profit of $1.6 billion a year earlier. The Capital Management division, which includes the brokerage, reported a loss of $499 million for the quarter, compared with a profit of $294 million a year earlier. The other divisions are the General Bank, Wealth Management, and Corporate and Investment Bank, which are primarily Charlotte operations.
The loss was the result of settlement costs related to auction-rate securities and losses related to market turmoil, the company said. Wachovia Securities agreed in August to buy back $8.5 billion of auction-rate securities it sold clients.
In putting those charges behind it, Wachovia cleans up the balance sheet in preparation for the sale to Wells Fargo. “It was prudent for Wachovia to put these losses behind them,” Wells Fargo CFO Howard Atkins said in a release. “The asset write-downs, reserve build and other items are consistent with our acquisition assumptions.”
Non-interest expenses in Capital Management increased 73 percent in the quarter, to $2.1 billion, because of the settlement charges and A.G. Edwards acquisition. Net interest income for the quarter increased 45 percent, to $388 million, driven by retail brokerage core deposit growth primarily due to the acquisition.
Total revenue in the Capital Management division dropped to $1.4 billion in the third quarter from $1.7 billion in last year’s quarter, though it fared better for the first nine months of the year, up 17 percent to $6.1 billion, boosted by the acquisition.
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