Partners Vote to Sell Montgomery

The group of partners who own Montgomery Securities have reportedly voted to sell the investment banking firm for about $1 billion to NationsBank Corp., in what would be the fourth major acquisition of an investment banking firm in the last three months, sources said.

The apparent acquisition is the latest of several high-profile sales of investment banking firms to major commercial banks. As rules that restrict banks’ involvement in underwriting securities and selling stocks crumble, more large banks are scrambling to get into the potentially more lucrative securities industry.

Although neither side was available for comment, the planned acquisition of California’s largest investment banking firm is expected to be announced today, according to Bloomberg News.

San Francisco-based Montgomery has grown rapidly since it was founded in 1971, with much of the growth this decade fueled by the underwriting of initial public offerings for growing health-care and high-tech companies. In fact, in the last five years, Montgomery was the largest IPO underwriter in California, helping to take more than 120 companies public.

Analysts said the deal makes sense for Charlotte, N.C.-based NationsBank as it would give the nation’s fourth-biggest bank a major base in California from which to make other acquisitions, especially other banks.

Montgomery has increasingly boosted its mergers and acquisitions business and recently helped advise San Francisco-based Wells Fargo & Co. on its successful hostile takeover of Los Angeles-based First Interstate Bancorp.

“Nations is one of the more aggressive of the East Coast banks,” said banking consultant Gerry Findley, who helps publish the Anaheim-based Findley Report, which tracks California’s financial institutions. “By establishing themselves on the West Coast with this acquisition, you’re likely to see them make some other purchases here.”

NationsBank would reportedly pay mostly cash and a small portion in stock for Montgomery, the 10th-highest-ranked stock underwriter in the country. Company founder and current Chairman Thomas Weisel is expected to continue to lead the firm.

Several commercial banks have recently purchased investment banking firms, with increasingly higher prices paid for each firm. Earlier this year, BankAmerica Corp. agreed to buy Montgomery rival Robertson, Stephens & Co. for $540 million and Swiss Bank Corp. said it would acquire Dillon, Read & Co. In April, Bankers Trust New York Corp. agreed to purchase Alex. Brown.

Some analysts have questioned whether the strategy may be a misguided fad that will cause the banks trouble in later years if cultures fail to merge or a stock market downturn suddenly makes the securities business much less profitable.

“I don’t think this will be as lucrative as they think it will be,” Findley said. “This is something exciting right now, but historically these things haven’t worked out well. We may be seeing some divorces.”

Findley pointed to BankAmerica’s purchase of Charles Schwab & Co. in 1983 for $53 million in bank stock. Four years later, Charles Schwab bought his own company bank again after BankAmerica started having financial problems.

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Top Lead Managers

Montgomery Securities was among the top 10 lead managers of U.S. equity offerings--both IPOs and secondary sales--as measured by the value of stock sold in the first six months of 1997. *--*

Lead Manager Value (in millions) Offerings 1. Merrill Lynch $8,714 54 2. Goldman, Sachs & Co. 8,483 54 3. Morgan Stanley 5,629 41 4. Donaldson, Lufkin & Jenrette 3,500 25 5. Alex. Brown 2,419 21 6. Credit Suisse/First Boston 2,179 18 7. Smith Barney 2,150 30 8. Lehman Brothers 2,106 23 9. J.P. Morgan 1,918 11 10. Montgomery Securities 1,648 30

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Source: CommScan