Re­gional lenders try hand at in­vest­ment bank­ing to reap fees

Northwest Arkansas Democrat-Gazette - - WEATHER REPORT - JENNY SURANE

At­lanta and Cleve­land are far from Wall Street, but re­gional banks in those and other U.S. cities are mim­ick­ing their big­ger com­peti­tors by plung­ing into cap­i­tal mar­kets.

SunTrust Banks Inc., KeyCorp and Ci­ti­zens Fi­nan­cial Group are among large re­gional lenders that have been build­ing out their in­vest­ment­bank­ing ca­pa­bil­i­ties as stub­bornly low in­ter­est rates have crimped prof­its. Now they’re reap­ing the ben­e­fit, re­port­ing record fee in­come from the units in the first half of the year.

In­vest­ment-bank­ing rev­enue at seven of the 11 largest re­gional banks that break out re­sults for the busi­ness climbed a com­bined $ 339 mil­lion in the first half of the year. The lenders are of­fer­ing merger ad­vice, debt un­der­writ­ing and help rais­ing cap­i­tal to the same types of mid­dle- mar­ket com­pa­nies that they’ve long pro­vided with rou­tine bank­ing ser­vices. That seg­ment of the mar­ket has been ea­ger to grow in re­cent years, with 31 per­cent of ex­ec­u­tives in a re­cent SunTrust sur­vey say­ing they’d like to make a ma­jor cap­i­tal in­vest­ment over the next five years and 17 per­cent in­ter­ested in ac­quir­ing an­other com­pany.

The re­gional banks’ op­er­a­tions are still dwarfed by those of Wall Street be­he­moths such as JPMor­gan Chase & Co., which gen­er­ated $1.8 bil­lion in sec­ond-quar­ter in­vest­ment-bank­ing fees. But the fact that smaller firms are post­ing rev­enue gains in that busi­ness in a quar­ter where Gold­man Sachs Group Inc. re­ported a 3.2 per­cent drop from a year ear­lier speaks to the appeal of their of­fer­ings.

“It’s been a very dis­tinc­tive part of our busi­ness model,” KeyCorp Chief Ex­ec­u­tive Of­fi­cer Beth Mooney said in a tele­phone in­ter­view. “Wall Street is much heav­ier into trad­ing and mar­ket-mak­ing ac­tiv­i­ties than core re­la­tion­ship in­vest­ment bank­ing and ad­vi­sory for mid­dle-mar­ket com­pa­nies. This is re­flec­tive of our re­la­tion­ship strat­egy, this busi­ness only gen­er­ates rev­enue from our core cus­tomer base.”

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