BankAmerica Corp.'s plans to acquire California investment bank Robertson Stephens & Co. represents the first step in the financial giant’s strategy to build a global investment banking operation and will also allow it to raise more capital for California businesses, analysts predicted.
The San Francisco-based banking company said Monday it will buy Robertson, a leading investment banker for growing high-tech and health-care companies, for about $540 million in cash. It said it will raise some of the money by selling its Security Pacific Financial Services division to a unit of Travelers Group for $1.6 billion.
“This is part of BankAmerica’s campaign to get out of those businesses which are under-performing and invest in ones that are more promising,” said Raphael Soifer, banking and financial analyst with Brown Bros. Harriman & Co. in New York. “This gives them both equity underwriting and money management.”
Analysts said the bank has wanted to enter the potentially lucrative investment banking business for a long time. The securities industry posted record profits last year, buoyed by recent record highs in the stock market.
BankAmerica, which once owned the Charles Schwab brokerage, already makes corporate loans and underwrites some debt for small and medium-size companies, the core of its client base, but the Robertson purchase will give the bank a way to help companies sell stock.
“It would be awfully presumptuous to say we’re going to be as big and bad as Merrill Lynch starting tomorrow,” said Michael McCaffery, Robertson’s chief executive. “But with the assets of BankAmerica behind us we can do more of what we’ve been doing on a global basis.”
McCaffery, who will remain chief executive under the terms of the acquisition, said the firm will immediately expand into the telecommunications and entertainment areas, beef up its research department and add investment banking staff. It will also look more to Asian markets for business, he said.
Privately owned Robertson Stephens, with 750 employees, is one of a handful of California-based investment banking firms. It currently leases space from BankAmerica in the company’s headquarters building in downtown San Francisco.
Robertson was the 12th-largest equity underwriter in the country in 1996, completing $2.2 billion worth of deals. So far this year, the firm has completed 10 deals worth $126 million and is ranked 14th nationwide, according to CommScan, a data firm in New York.
Robertson also has an investment management unit with $4.3 billion in assets, including about $3 billion in 11 stock mutual funds and $500 million in venture capital funds.
This is the third purchase of an investment bank or brokerage by a commercial bank this year as major banks continue to take advantage of new Federal Reserve Board rules easing restrictions on commercial banks’ ability to engage in brokerage activities.
In April, Bankers Trust New York Corp. agreed to buy Alex. Brown & Sons Inc. for $1.7 billion. Swiss Bank Corp. agreed to buy Dillon Read & Co. in May for $600 million.
While most analysts hailed the move as a good fit for BankAmerica and Robertson, some said integrating BankAmerica’s more traditional banking culture with the ways of Wall Street may not be easy.
“Will they offer the incentives that the more entrepreneurial Wall Street types like?” asked financial analyst Michael Abrahams at Sutro & Co. in San Francisco. “That will be the test.”
The sale of the Security Pacific Financial unit, which provides home equity and other real estate loans, comes three months after BankAmerica said it planned to sell the unit, acquired in its 1992 acquisition of Security Pacific Corp.
Under BankAmerica Chairman David A. Coulter’s direction, the nation’s third-largest bank has sold several non-core businesses in the last year, started to revamp its overseas operations and eliminated 3,700 jobs.
BankAmerica’s stock climbed 75 cents a share Monday to close at $124 in New York Stock Exchange trading.