Wells Fargo Bank, in a move that will put it in the forefront of the drive to gain new powers for banks, acknowledged Thursday that it will open a full-service brokerage on Jan. 1.
The San Francisco-based company will be the first California bank to offer services that are virtually identical to those available at brokerages such as Merrill Lynch and Shearson Lehman Hutton. Only a handful of banks in the country have full brokerage operations.
Many banks operate discount brokerages, which will take customer orders for stocks but are not permitted to offer investment advice. The discount brokerages charge commissions that are less than those at full-service houses.
The new Wells Fargo brokerage will offer customers advice on a full range of investments, including stocks and bonds, as well as handling orders. The commissions will be in line with those charged at other brokerages, a bank spokeswoman said.
Will Depend on References
Wells Fargo, which will officially announce the program today, will operate the brokerage through a subsidiary, Wells Fargo Securities. It will have an office in downtown Los Angeles at the Wells Fargo Center and another in the bank's headquarters in San Francisco.
The brokerage will have 20 brokers initially and will depend heavily on referrals of customers from its branches around the state.
Wells Fargo received approval from the Office of the Comptroller of the Currency in Washington in October to open the brokerage.
The nation's big banks have been frustrated in their efforts to persuade Congress to reform the law and allow them to expand into the investment banking areas now reserved for securities firms. The banks want the ability to underwrite corporate securities and municipal debt along with other investment banking powers.
The banks have argued that they need new sources of income because their traditional business of lending is less profitable and many of their largest corporate customers are using other financing techniques.
Congress, however, failed to pass legislation changing the law this year so federal banking regulators have been considering new powers on a case-by-case basis. For instance, three big banks, including Security Pacific in Los Angeles, asked the Federal Reserve Board in October for the power to engage in key investment banking activities.
The Wells Fargo subsidiary will not be allowed to underwrite securities or provide similar investment banking services. The operation, however, will have most of the other powers available to a brokerage firm.
"We will provide advice and recommendations to clients on a variety of services," said Kim O. Kellogg, a spokeswoman for the bank in San Francisco. "This will be for people who might want some additional investment advice, who might want to diversify beyond certificates of deposit."
Kellogg said the brokerage will be available to customers and non-customers of the bank, but she said the bank expects most of the business to come from referrals made through its bank branches.
See an Advantage
Wells Fargo's brokers will take orders and offer advice and the actual trades will be executed through Stephens Inc., a brokerage in Little Rock, Ark. Stephens will also continue to handle trades for Wells Fargo's discount brokerage.
Banks have long felt that brokerages would be a natural fit with their existing branch operations, since the branches offer a ready supply of potential customers. They also feel that they may have advantage over the securities industry in a battle for customers because banks tend to have a more staid image.
NCNB National Bank in Charlotte, N.C., was the first bank to receive approval for a full-service brokerage. It came on June 22, 1987.
Susan C. Carr, head of investor relations at the regional bank, said the full-service brokerage has been profitable in its own right and successful in bringing in new customers.
"We view the brokerage as part of a relationship package," Carr said.
Since last year's stock market crash, many banks have found that the lower volume of stock trading has made discount brokerages unprofitable and some banks have sold or reduced the units. But Carr said that the full-service operation has gained ground because customers can buy products other than stocks, such as bonds.
NCNB recently signed an agreement to buy a small Charlotte brokerage and the deal will bring its total number of brokers to about 100, Carr said.