By Brian R. Hook
‘Wachovia Securities
is With St. Louis’:
The message is posted
on billboards, wrapped around busses, printed
on full-page advertisements in newspapers
and aired on television
stations in St. Louis. Nationally, the message
is ‘Wachovia Securities
is With A.G. Edwards.’
These are not merely slogans to promote the merger of
Wachovia Securities LLC and A.G. Edwards & Sons Inc.
The campaign is more about letting people in St. Louis
and around the nation know that the merger between the
two brokerages is viewed as a partnership, says Danny Ludeman, president and CEO of Wachovia Securities.
“Rather than come in and look like we’re trying to take charge, this is all about acknowledging that we’re excited that Wachovia Securities is with A.G. Edwards,” he says. “That is a big part of communicating the value of what our two firms can do.”
MERGERS & ACQUISITIONS
A handful of mergers between brokerages and banks led up to the merger between Wachovia Securities and A.G. Edwards, which closed on October 1st last year.
Wheat First Butcher Singer, a regional
brokerage headquartered in Richmond, Va., merged with the bank First Union in Charlotte, N.C. in 1998, shortly after federal regulators dropped the barriers that prevented brokerages and banks from merging.
"We knew that our firm, while a great firm, and 100 percent owned by associates, just did not have the scale and scope to compete in the long run," says Ludeman, who was one of five on the executive committee at Wheat First. "We wanted to be in a position where we could pick our partners, a firm that understood our business."
Wheat First also wanted to partner with a bank that was committed to the universal bank model, which provides customers with
a one-stop financial shop, whether they
are looking for investment advice, a home loan, or simply a checking account.
First Union merged with Winston
N.C.-based Wachovia to form Wachovia
Corp., which has grown into the nation's fourth-largest bank. While Charlotte became the headquarters for Wachovia Corporation, the brokerage headquarters remained in Richmond.
Between the merger with First Union
and announcing the merger with A.G. Edwards on May 31st last year, what is now Wachovia Securities bought seven other
brokerages, taking it from the 28th-largest brokerage in the nation to the 3rd largest. After the merger completed in October, it is now 2nd largest behind Merrill Lynch & Co.
in New York.
ST. LOUIS HEADQUARTERS
As part of the merger with A.G. Edwards, Wachovia has moved its brokerage headquarters from Richmond to St. Louis. The brokerage will keep a presence in Charlotte, Richmond and New York, but Ludeman says 95 percent of the brokerage operations are going to be headquartered on the former A.G. Edwards campus.
All the aspects of the brokerage business—including finance, compliance, legal, branch administration, human resources and technology—are handled from the firm's
St. Louis base, in coordination with the firm's parent company in Charlotte.
Wachovia Securities has three primary businesses. Private Client Group is the traditional retail brokerage business and is the largest part of the company. Investment Services Group is the bank brokerage component, where a number of financial advisers that report to Wachovia Securities work in tandem with individuals at the retail bank.
The third component is the Independent Brokerage Group. This is where Wachovia Securities' correspondent client group is located. It serves roughly 120 smaller broker dealers and provide back-office support and other services.
Once the merger is completed, Wachovia Securities expects to have around up to 1,000 more jobs in St. Louis than the number A.G. Edwards had prior to the merger. "And that does not count any future business growth" that would generate additional jobs to support that growth, Ludeman says.
Wachovia is still in the process of assessing how much real estate is needed in
St. Louis. There is currently 2.6 million square feet of contiguous space on the former
A.G. Edwards campus, with only around 60 percent of the space currently being used.
Wachovia's policy is not to own real estate. Wachovia will decide whether to continue owning the space or sell it and lease it back, which Ludeman says is often a more efficient use of capital. "We want to make sure that we have plenty of space," he says. "But we also want to make sure that we are good stewards of our resources."
COMPLEMENTARY DIFFERENCES
The most important element in a successful merger is affiliating with people who have the same principles, Ludeman says. With A.G. Edwards and Wachovia Securities, it is putting the client's interest first and treating people, as you would like to be treated.
"A.G. Edwards is a firm I've wanted to partner with for years, primarily because the cultural similarities between what our firms stand for are very similar," he says.
"It's been just a remarkable experience to watch and observe the firms coming together, and realizing how many similarities there are between the two organizations."
While many similarities exist, there are differences. But the differences are complementary, allowing the combined firm to capitalize on different strengths.
A.G. Edwards is known as being one of the best places to work in the country. It also ranks high in its services provided to clients. The third area where A.G. Edwards is known for is bringing in new talent and training them to become financial advisers.
Wachovia Securities has seen the highest increase in financial adviser productivity in the last five years. It has the lowest attrition rate of financial advisers. It has also succeeded in recruiting experienced financial advisers to the brokerage.
"When you look at productivity, retention and attracting experienced financial advisers, and couple that with the top three strengths of A.G. Edwards, it is perfect because they are not the same strengths," he says. "It gives me great confidence in being able to say that I believe we are creating a firm that does not exist in the marketplace."
Ludeman does not expect any mergers in the near future. "If something unfolds down the road where we see an opportunity to do a merger, we will look at it. But I don't see that happening anytime soon. Our initial focus is to finish the integration," he says.
COMBINING OPERATIONS
Combining Wachovia Securities with A.G. Edwards is not about getting bigger, Ludeman says. "It's not about some ego kick to be the second largest. It's more about bringing two firms together that share a common belief and a common heritage."
Wachovia Securities is developing a target operating model, which will be a combined model of how the firm will operate. "We're going through a very methodical, deliberate process, assessing all of the policies and
procedures of both firms," he says.
Wachovia has targeted milestones for combinations like payroll conversions,
branding activities, and rolling out new
products and services. Ludeman says the
firm is on track to complete the
combination by President's Day weekend
in February.
When merging two brokerages together, there is always the threat of other financial firms looking to poach talent from the firm under transition. "There is no question that when two firms come together there is a
certain degree of uncertainty that is
created," he says.
The combined firm at the end of the first quarter, however, ended up with more
financial advisers than the two separate firms had a year ago. "It is a huge vote of confidence by both organizations in what we are doing," Ludeman says. "It will probably take 18 months to be able to see the full impact of what the merger is about."
MARKET CONSOLIDATION
The turmoil rippling through the financial markets, along with uncertainty in the
economy, has presented unexpected, but not insurmountable challenges, Ludeman says.
"The challenge primarily is to make sure that we are communicating properly and that we keep focused on the longer term," Ludeman says. "I'm absolutely convinced that, if we stay focused on those things that we can control and not obsess or fret about a lot of things that we can't control, we will emerge much stronger than our competition."
Ludeman expects the shakeout in the financial industry to continue. "I think
there are only going to be two or three firms left in the industry when it is all said
and done," he says. "This merger is about making sure that we are one of those firms that are left."
Ludeman does not anticipate that other large brokerages will disappear. Instead, the firms will affiliate with other universal banks. "We're betting on the universal bank model, with the diversification of revenue streams, fortress-like balance sheets and with individuals being able to capitalize on all of the services of a universal bank," he says.
While the mid-size brokerages get squeezed, similar to what happens in other rapidly consolidating industries, lots of smaller boutique firms will start popping up around the country, Ludeman says. "That's why we like being in the corresponding and clearing space, because we can offer our services to thousands of smaller boutiques."
"ther universal banks may have stumbled recently, but it is not the fault of the banking model itself, Ludeman says. "I think it comes down primarily to execution. I believe it is how you execute on the model whether or not firms are successful."
Ludeman predicts it will be Wachovia Securities against two large brokerages in New York. "I love our chances in that fight. We stand for something that is different,"
he says. "We have basically taken the best
of both worlds. We provide all of the resources of the larger firm, but with the client intimacy that is necessary with the smaller firms."
AMBASSADOR FOR ST. LOUIS
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Danny Ludeman, president and CEO of Wachovia Securities, readily admits that before moving to St. Louis last August to lead the team through the merger with A.G. Edwards, he did not know that much about the area. Now he is a big promoter.
"It's just a great place. A real gem," Ludeman says.
"A lot of people outside of St. Louis don't know that story."
Ludeman says it is important for the headquarters of Wachovia Securities to be in a large city like St. Louis that is centrally located. In addition to an airport that
provides access to lots of other cities, the brokerage is able to draw upon a large
labor pool.
Ludeman also cites world class health facilities, entertainment, sporting franchises and educational institutions as an important draw. He says that strong universities are key. "It is very important for us to be able to draw upon that talent, because we will probably be hiring 300 to 500 people a year from these universities right upon graduation."
Ludeman says he is getting to know the
St. Louis area more and more, and he is trying to become more active in the community. "A.G. Edwards has a tremendous history of community involvement, so it is easy, to be frank, to continue that tradition," he says.
"I can't begin to express how warm and hospitable individuals and corporations have been to myself, my family and all the families from Wachovia Securities that have relocated here already," he says. "People have reached out to us in so many ways."
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