ABOUT THIS COMPANY

ABOUT THIS COMPANY

First Union Securities is a subsidiary of First Union Corp., a Charlotte, N.C.-based commercial bank with over $12 billion in revenues. The firm's securities business is concentrated in First Union Securities, which encompasses the retail side and First Union Capital Markets, the investment banking subsidiary that handles underwriting. First Union has reported 72 mergers since 1985. Eager to create a full-service financial firms, and perhaps spurred on by the creation of Citigroup, First Union has been aggressive in building their securities business. "What we're trying to build is a combination that's 50% bank and 50% securities business," Donald McMullen Jr., executive vice president and head of First Union's capital management group, told American Banker. The securities business has been boosted by three mergers since 1998: Bowles Hollowell Conner, Everen Capital Corp. and Wheat First Butcher Singer. The firms were consolidated under the First Union name in late 1999. All told, First Union Securities, based in Richmond, Va., has approximately 1.5 million customers and over 320 office locations.

Wheat bread

In an effort to establish the 50/50 mix, First Union has aggressively pursued mergers and acquisition within the past several years. First on the list was Wheat First Butcher Singer, acquired in February 1998 for $491 million. After its acquisition, the investment bank and brokerage firm was renamed Wheat First Union, then to First Union Capital Markets in January 1999. First Union continued to expand its equity underwriting business by poaching 50 Deutsche Bank Alex. Brown in summer 1999, and moved most of its underwriting business, as well as some trading, from Richmond to Baltimore, site of Alex. Brown's home offices. At the time, First Union was lagging in Internet and technology analysts and underwriting. Industry analysts saw the Alex. Brown hires as an attempt to establish a foothold in that area, and First Union made no attempt to hide its strategy of growing from without. "The key to winning investment banking business is to continue to hire and develop research analysts who are thought leaders," said Wayne Hunter, head of Capital Markets' tech division and a former Wheat First employee, in Investment Dealers Digest. First Union did over 25 deals in the last half of 1999, after the Alex. Brown signings.

Next up: Bowles Hollowell Conner

First Union's next acquisition was Bowles Hollowell Conner (BHC), a respected Charlotte-based investment bank specializing in mergers and acquisitions. "[BHC's] well-established merger and acquisition advisory capabilities, combined with their strong private equity group relationships, will immediately enhance our ability to serve clients and leverage our comprehensive capital markets product line," Ken Thompson, now CEO of the parent company, First Union Corp., told American Banker in May 1998. BHC was founded in 1975, in part by Erskine Bowles, who later went on to hold several positions in President Clinton's administration, including chief of staff. Because of ethics laws, Bowles was forced to sell of his interest in BHC, a move that cost him $85 million when the firm was bought out, according to Business Week. (Don't feel sad for Bowles. After deciding against running for governor in North Carolina, he joined M&A firm Forstman Little in N.Y.)

Everen rounds out the fold

Everen Capital Corp., a brokerage firm based in Chicago, was acquired by First Union in May 1999 for over $1 billion. EVP McMullen claimed the Everen purchase would be the last for First Union for the forseeable future. "This [acquisition] really gives us the mass and scale we wanted," he told American Banker in October 1999. After acquiring Everen, First Union folded their entire investment-related business under one name, First Union Securities, with First Union Capital Markets handling the underwriting and research functions.

Big deals

Despite its status as a relative newcomer, First Union Securities' Capital Markets division has been involved in some big deals. Recent equity participation includes lead managing a secondary offering for CT Communications and Headhunter.net's IPO and co-managing IPOs for Cysive Inc. and Xpedior Inc. Mergers and acquisition deals include Veridian Corp. and Naviant Technology Solutions. Among their high-grade debt portfolio is sole manager for bonds issued by Winn-Dixie Stores and Norfolk Southern. First Union has put together some impressive stats for the past few years: equity transactions have totaled $23.3 billion since 1997, M&A transactions have topped $21 billion since 1992 and high-grade debt deals totaled $12.1 billion in 1998.

Heads did roll

Despite First Union Securities' impressive numbers and their aggressive growth, the firm has found it necessary to cut back several times over the past couple of years. The firm chopped about 300 people, including part of its public finance team, in spring 1999 and reduced the workforce by about 6% after the flurry of 1998-1999 mergers. In February 2000, the bank cut its real estate investment trust (REIT) team, following the lead of other firms that cut down on REIT coverage. The cutbacks lead to the departure of Eric Lohmeier and Hollis Taylor, both well-regarded REIT analysts. Despite these setbacks, First Union intends to grow their securities subsidiary. The Bond Buyer reported in June 1999 that the bank planned to spend about $125 million in 2000 to grow the capital markets group.