Wells Fargo & Co. is betting its securities business can thrive 600 miles from New York in the same city Bank of America Corp.’s traders largely abandoned.
The first of 900 Wells Fargo employees moved last month into a new space on two floors of a 48-story tower in Charlotte, North Carolina. From their windows they can see the complex a half-mile away where Bank of America built its own state-of-the-art facility less than a decade ago for about 550 traders and investment bankers. Most have since been fired or moved to New York.
Both banks are vying to be winners in bond trading even as margins collapse and rivals such as UBS quit the field. Wells Fargo is out to prove the business doesn’t need to be in New York, with John Shrewsberry, president of the firm’s securities unit, counting on lifestyle perks, cheaper housing and the San Francisco-based bank’s status as a growing company to lure talented people.
“On a day-by-day basis in terms of information flow, it’s all electronic, and we’re as wired as anyone else,” Shrewsberry, 47, said in an interview. “People don’t run out of their buildings in downtown or midtown Manhattan and meet in the street to talk about markets.”
To build the business, Wells Fargo chief executive officer John Stumpf, 59, is relying on a corps of traders added in the 2008 acquisition of Wachovia Corp. About 1,500 bond-trading and investment-banking employees reside in Charlotte, the 17th largest U.S. city. That compares with about 700 in New York, where the equities business is based. Less than a dozen people were transferred to Charlotte from San Francisco, which houses about 400 securities personnel, said Elise Wilkinson, a Wells Fargo spokeswoman.
The bank has capacity for about 1,200 traders and support staff in the 70,000-square-foot facility, where a new-carpet smell still permeated the space on a December afternoon. It features more than two dozen 70-inch, high-definition television screens and under-floor cooling with customizable floor vents.
Bank of America moved many traders out of Charlotte, where the entire company is based, after the lender’s 2009 purchase of New York-based Merrill Lynch & Co., said a person with direct knowledge of the lender who asked not to be identified because he wasn’t authorized to speak publicly. As the business grew more global, it made sense to consolidate in a financial center such as New York, the person said. A small number of traders still work in Charlotte. Kerrie McHugh, a Bank of America spokeswoman, declined to comment.
The volatile nature of investment banking confounded former Bank of America CEO Kenneth D. Lewis as he tried to build a securities operation. In 2006, his corporate and investment bank posted $6.03 billion in profit, only to see it plunge 91 percent a year later amid $5.6 billion in losses tied to trading and mortgage securities.
“I’ve had all the fun I can stand in investment banking,” Lewis said Oct. 18, 2007. He blamed bad judgment by his traders and announced plans to scale back the business, cutting 3,000 jobs. A year later, Lewis reversed course by agreeing to buy Merrill Lynch for about $50 billion in stock — only to see some of its top executives and brokers leave as analysts expressed concern about a brewing culture clash.
Wachovia faced its own challenges before mortgage losses forced the sale of the Charlotte-based bank to Wells Fargo in 2008. Wachovia’s investment bank was slammed by $1.52 billion in trading-account losses in the first nine months of that year.
Staying in Charlotte was more attractive than “moving all of those people someplace else or starting over, which I never even entertained,” said Shrewsberry, who’s based in San Francisco. “Wachovia and now Wells Fargo, and separately Bank of America back in the day, took this other approach of making Charlotte a banking headquarters, and we’ve benefited from that.”
The bank is in “no hurry” to fill about 300 open seats and will add staff in areas such as futures clearing and prime brokerage for hedge funds, Shrewsberry said.
Wells Fargo became the fourth-largest U.S. bank with a focus on consumers by building the biggest branch network. The lender hasn’t posted an annual loss in more than a decade. Executives have broadened the strategy to include investment banking as nine global securities firms including JPMorgan Chase & Co. and Citigroup Inc. announced more than 32,000 job cuts in 2012, according to data compiled by Bloomberg. UBS said it would close most of its fixed-income operation.
Fixed-income trading has generated profit margins of about 25 percent in recent years, and that may fall to 19 percent as new regulations related to derivatives clearing and a ban on proprietary trading are implemented, Sanford C. Bernstein & Co. analysts led by Brad Hintz said in a November note to clients.
Investment-banking revenue at Wells Fargo rose 30 percent in 2012 from a year earlier, and the firm is inching up the league tables, even as Stumpf repeatedly has said he couldn’t care less about rankings. Among U.S. bond underwriters, the bank was 10th in 2012, excluding its own deals, up from 13th the year before, Bloomberg data show. Bank of America ranked third the past two years.
The business could account for 10 percent of Wells Fargo’s total revenue in two to three years, according to a May estimate from Deutsche Bank AG. At competitors, the figure is 20 percent or more.
The “No. 1 trade-off” to choosing a smaller city for a growing trading operation is finding enough skilled people, Darin Buelow, a principal at Deloitte Consulting LLP in Chicago, said in an interview.
“There are going to be certain slices of the banking industry that will scoff at the idea” of basing a trading business outside New York, Buelow said. “They just don’t fundamentally believe that the talent exists anywhere else” in the U.S.
Recruiters for financial-services jobs said Wells Fargo should have little trouble luring employees as applicants face fewer options at other banks and choose Charlotte’s lifestyle and lower prices. The cost of living for a family of four is about 44 percent less than in Manhattan, according to ERI Economic Research Institute, a Redmond, Washington-based compensation firm.
In Charlotte’s Eastover section, long an outpost of the wealthy, an 11,300-square-foot home with nine fireplaces, built on three acres abutting a nature preserve, was listed for $3.45 million in mid-December, according to property website Trulia.com. By comparison, a 10,900-square-foot apartment in New York’s Tribeca neighborhood with a rooftop gym and enough storage for 1,000 wine bottles was listed for $24.5 million.
Dining also is less expensive. At 5Church, a restaurant frequented by bankers whose head chef spent time at New York’s Le Cirque and Daniel Boulud’s Cafe Boulud, an American Kobe Flatiron Steak goes for $40. At New York’s Smith & Wolensky steakhouse, a sirloin cut costs $54.
That translates into lower compensation, typically the No. 1 expense for securities firms, said Joseph Sorrentino, a managing director at Steven Hall & Partners, a New York-based compensation-consulting firm. Wells Fargo also saves by moving staff from leased-space into a building it owns, and on lower real estate taxes, consultants said.
Stock brokers in Charlotte with 14 years of experience make about 16 percent less than they would in Manhattan and investment managers earn about 14 percent less, according to ERI. Support staff are sometimes paid as much as 40 percent less, Jason Kennedy, CEO of London-based search firm Kennedy Group, said in an email.
“For those bankers with a family, it might not be about the money but more about the lifestyle,” said Michael Karp, CEO at New York-based executive-search firm Options Group.
Even so, the bank is unlikely to be able to hire everyone it would like to, said Moshe Orenbuch, a New York-based bank analyst at Credit Suisse Group AG.
“Will you be able to get everyone you want? Probably not,” Orenbuch said. “Will you be able to get enough to staff your operation? Yes.”
For Anik Ray, a former subprime-mortgage-bond strategist who worked for Wachovia in New York and Charlotte, New York’s social scene wins out.
“In New York, I had the opportunity to call my buddy who I used to work with, have a drink with him because he worked at an asset manager or a hedge fund doing the same thing, and talk to him one-on-one in person,” said Ray, 30, who took a job with hedge fund Hildene Capital Management in New York after leaving Wells Fargo. He’s now a student at the University of Michigan’s Stephen M. Ross School of Business in Ann Arbor.
“You were in touch with as many people, but you have to be on the road a lot more or have really, really good relationships,” he said of Charlotte. “That was hard to build if most of your clients were in New York or San Francisco.”
The travel is made easier with an airport that’s “one of the best parts of living in Charlotte,” he said. Traders can rent apartments within blocks of the office, and the milder weather meant no winter snow. Both public and private golf courses were within 15 minutes driving time from the office, said Ray, who leased a mid-model Infiniti.
“I miss the car a lot,” he said.
Wall Street heavy-hitters have moved to Charlotte in the past. Tom White left a job at Morgan Stanley in 1994 to join a Bank of America predecessor there. He was named head of the global-markets business in 2007 before moving back to New York to start City on a Hill Capital LP, a hedge fund. Ian Banwell, a former chief investment officer at Bank of America, stayed in Charlotte after leaving the bank and now runs the hedge fund Round Table Investment Management Co. Banwell serves on the U.S. Treasury Department committee that advises the government on debt issuance and was once chairman.
Executives have also moved out. Curtis Arledge, who served as Wachovia’s head of fixed-income until April 2008, returned to New York to join asset manager BlackRock Inc. Arledge is now CEO of Bank of New York Mellon Corp.’s investment-management arm, which oversees $1.4 trillion.
Even before the Merrill Lynch purchase, Bank of America was staffing up in New York because the pool of talented traders was so much deeper than in Charlotte, according to a former executive at the bank. The best traders were reluctant to make the move south knowing if it didn’t work out, they’d have fewer job options, the person said.
Bank of America’s exodus to Manhattan accelerated with the addition of Merrill Lynch senior managers, including Thomas K. Montag, the lender’s co-chief operating officer as well as the trading and investment-banking chief, who is based in New York.
“I haven’t read anything into their decision-making that’s made us rethink our approach,” said Shrewsberry, whose ranks in Charlotte have been bolstered by former Bank of America bankers. “It wasn’t on purpose or part of our hiring plan, but through the process of looking at qualified people applying for roles, no surprise, some of them used to work at Bank of America.”
More than 60,000 people in the greater Charlotte area had financial-services jobs as of Sept. 30, or about 7.2 percent of the non-farm workforce, according to Bureau of Labor Statistics data. In New York, the figure was 444,200, or 11.5 percent.
Charlotte’s birth as a financial center came with the 1799 discovery of gold nearby, according to the Chamber of Commerce. Less than 40 years later the U.S. opened a mint to press coins made from the precious metal.
In the past three decades, former Bank of America CEO Hugh McColl, 77, used North Carolina National Bank as a foundation to create the largest U.S. bank with the 1998 purchase of San Francisco-based BankAmerica Corp. Ed Crutchfield, 71, used a similar strategy and built First Union National Bank into what would become Wachovia, the fourth-largest U.S. bank before it unraveled during the 2008 credit crisis.
Today, Bank of America employees occupy buildings on one side of Trade Street, which bisects downtown Charlotte, while Wells Fargo’s are on the other. The city had an estimated population of more than 751,000 in 2011, according to U.S. Census Bureau data. New York’s population of 8.2 million ranked first.
Wells Fargo’s new facility started as Wachovia’s headquarters when planning began in 2004, the year Bank of America moved traders into a three-story trading floor that ranks among the largest in North America. Another building, Bank of America’s 60-story headquarters, is the city’s largest.
Wells Fargo’s strategy is centered on serving customers rather than becoming the largest trading operation, said Tony Plath, a finance professor at the University of North Carolina in Charlotte. That should allow the company to take more time to find and attract talented workers, professors and consultants said. The bank’s ability to do that is the chief question, Deloitte’s Buelow said.
“Can you find those folks in enough scale to make it work?” he said.