Regional lenders try hand at investment banking to reap fees

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.”