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Wall Street on the James
Wachovia Securities is the third largest brokerage firm in the United States -- the largest outside of New York. Its location in Richmond, Va., has been a strong competitive advantage.
Richmond’s Riverfront Plaza, with its views of the James River’s burbling, tree-lined rapids, is far removed from the canyons of Manhattan and such investment powerhouses as Merrill Lynch and Smith Barney. Yet decisions made inside Richmond's twin, 20-story buildings are as likely to move the United States financial markets as those at the country's top two brokerage houses.
For two years now, Wachovia Securities, formed by the merger of Wachovia Securities and New York’s Prudential Securities, has operated the nation’s third-largest brokerage from the banks of the James. The merger, which will add a total of 1,200 new jobs to Richmond when it's complete, exemplifies the city’s revival as a regional financial center after the loss of several major banking headquarters in the 1990s.
From Riverfront Towers, instructions zip out to 2,800 offices in the U.S. and seven Latin American countries. The Richmond headquarters directs how 8,000 financial advisors and more than 2,400 licensed financial specialists handle some $680 billion in clients’ assets.
“Two years ago, skeptics wondered just how a large New York company would fit in a place like Richmond,” says Daniel J. Ludeman, the president and chief executive officer of Wachovia Securities, 62 percent of which is owned by Charlotte-based Wachovia Corp. and 38 percent by Prudential Financial. The answer is clear: Just fine. Wachovia is proof that the brokerage business can prosper outside of New York.
“I talked about a new paradigm of a firm that didn’t exist in the marketplace,” Ludeman says: a brokerage firm that keeps a low profile and sticks to its knitting, selling clients financial products from stocks and retirement plans to annuities and hedge funds. Executives in the Big Apple might mug for the covers of the national business publications but Ludeman, a low-key product of Virginia Tech and the College of William & Mary's graduate business school, says, "Actions speak louder than words.”
Ludeman's plan in 2002 was to combine two prominent retail brokerages – a financially strong Wachovia Securities and the less profitable Prudential -- into one potent national company. Charlotte, N.C.-based Wachovia (then known as First Union), entered the full-service brokerage business through the acquisition in 1998 of Wheat First Butcher Singer, a major regional brokerage based in Richmond, and then invested in its growth and expansion. Joining forces seemed a good way to streamline costs while building critical mass to market retail business on a much larger scale.
The consolidation wasn’t always easy, given the differences in corporate culture between Prudential, which had deep roots in New York, and Wachovia, which dates back to frugal Moravian settlers in Winston-Salem, N.C. In terms of assets, it was a merger of near equals. Prudential was a little larger actually, with $280 million in assets compared to Wachovia's $250 million, but Wachovia was more profitable, so Wachovia executives dominated the combined organization, and the decision was made to relocate Prudential's retail brokerage operations and supporting staff to the lower-cost venue of Richmond.
As envisioned, the merger would create a total of 1,200 new jobs in the Richmond area, filled by Prudential employees in New York and its offices in Northern and Midwestern states, and some filled locally. About 100 high-level employees moved from New York to Richmond.
Persuading people to make the move has not been a challenge. Reasons for the region’s popularity are moderate housing prices, only slightly above the national average, and a wide range of amenities, including mountain trails, beaches and the cultural attractions of Richmond and other cities not far away. “Richmond is a new home for people throughout the company and they are attracted by lifestyles they could have only dreamed of before,” says Ludeman, who spent years in the city as an executive at Wheat First.
Nationwide, Wachovia Securities has done a great job of hanging on to its employees. The company anticipated a turnover rate of nine percent. Wachovia’s normal attrition rate had been five percent and Prudential’s had been nine percent, so they averaged the two and upped it to be conservative. Ludeman was stunned when the numbers came in at only 3.6 percent, which he says “is the lowest of any firm on Wall Street.”
After the financial sector's merger-mania of the past 20 years, there aren’t many more candidates for consolidation left in the brokerage business. Corporate goals at Wachovia are to grow organically while digesting the regional brokerage firms acquired over the past several years, says Chief Administrative Officer Robert Mooney.
The company is on the prowl for 1,000 new advisers company-wide, which Ludeman characterizes as one of the single largest man (and woman) hunts in U.S. securities history. The hiring spree is designed to grab bigger portions of the highly competitive retail securities market.
Most of the new hires will be veteran financial advisers, says Mooney. That’s a difference from other brokerages, which generally get their new blood from internal training programs. Wachovia Securities has its own training programs, but this time the company is looking for experience.
"The company is fairly well managed and they have a lot of support for the company from Wachovia and Prudential,” comments Eric Fitzwater, a senior analyst at SNL Financial in Charlottesville. But increasing market share in the retail market will be a tough task, he says. “A lot of firms cater to the retail buyers right now and it’s a tough market to penetrate. If there is growth, it has to come at the expense of another company.”
Mooney says that Wachovia Securities’ brokers enjoy an edge in being able to offer a wide range of services from the parent company. Clients can tap the strengths of Wachovia Corporate and Investment Banking, a separate unit in Charlotte that maintains an extensive research department. And the association with Wachovia Corp., the nation's fourth largest bank-holding company, provides abundant opportunities for cross selling brokerage services to banking clients.
Industry analysts like Wachovia Corp., the brokerage firm's lead shareholder. A number of investment houses give Wachovia positive assessments and rate it a “buy.” “In retail brokerage and asset management," stated a report by ratings firm Morningstar, "we like the prospects of wider distribution consolidated on a singular brokerage platform. We expect these two segments to contribute more to overall revenue and earnings.”
Some analysts wonder, however, if Wachovia Corp. CEO Ken Thompson might still be in acquisition mode, which some analysts don’t recommend. Wachovia has been rumored to be after West Coast giant Wells Fargo or Northern Virginia credit card firm Capital One Financial. Conversely, Wachovia itself could be a takeover target, analysts report.
No one, however, is questioning the vital role that Wachovia Securities plays in Richmond. "Prudential's move here gave a big boost to the region," says Gene Winter, senior vice president of the Greater Richmond Partnership, a regional economic development organization.
Richmond has hosted a branch of the Federal Reserve since 1914 and long served as one of the leading banking centers of the Southeastern U.S. With the wave of bank mergers in the 1980s and 1990s, Richmond lost the headquarters of Signet, Crestar and Central Fidelity banks, which had grown into significant regional players. But the loss of banking headquarters did not spell the end to Richmond’s financial sector, Winter says.
Three of the region's Fortune 500 and Fortune 1000 companies are in the financial sector. Genworth Corp., a spin-off of General Electric, is one of the country's largest insurance companies. Markel Corporation develops products for niche insurance markets, while LandAmerica focuses on title insurance. Meanwhile, Capital One, which maintains its national operations center in the region, is known for its credit cards but also markets automobile loans and mortgages.
Scott & Stringfellow, a subsidiary of North Carolina's BB&T, and independents Davenport & Co. and Anderson & Strudwick also preside over strong regional brokerage franchises. Less visible, because they don't interact with the public, are a number boutique investment banking firms that cater to small and mid-cap companies. Harris Williams & Co., the largest of the home-grown investment bankers, was recently acquired by Pittsburgh's PNC Financial Services.
"The depth of human capital in the financial sector is remarkable for a city this size," says Winter. In addition to respected local business programs at the University of Richmond and VCU, three of the Top 100 MBA programs in the world, as ranked by the Financial Times, are located in Virginia. Two of them -- the Darden School and Ludeman's alma mater, William & Mary -- offer executive training programs within easy driving distance of Richmond. Both schools send a disproportionate number of their graduates here as well.
Even in a financial community as vibrant as Richmond's, though, the arrival of Prudential is a big deal. The region is getting an extra $75 million a year in incremental income and tens of millions of other dollars for home sales and the purchase of durable goods, Ludeman says. The merger so far has added 1,000 new jobs in the Richmond area and 200 more local jobs are expected. New positions involve spots for lawyers, accountants, regulatory compliance experts, marketing, operations and technology professionals and administrative and clerical works. The jobs pay anywhere from the low five-figure to the above-six-figures range.
Wachovia Securities is now the largest single donor to the United Way with its $1.1 million annual pledge, and it helps the local arts fund, the Richmond Symphony, the Science Museum and the Richmond Ballet, among other charities.
One of the firm’s more significant local achievements was helping break the back of the high airfares that have beset Richmond International Airport for years. Major carriers such as Delta and US Airways had charged high fares partly because Richmond is close to the Washington, D.C., metropolitan area where three airports compete viciously. Wachovia employees use the airport extensively. In fact, Ludeman estimates that 500 new passengers fly in and out of the airport every month as a result of the Prudential merger.
Executives from Wachovia and Philip Morris USA, which also had just relocated its headquarters from New York to Richmond, joined forces with longer-standing local business leaders to give Richmond a more competitive edge. Their strategy: lure budget carriers. This year, AirTran started flying to Atlanta and JetBlue will start flying to New York another other major cities in February. Ludeman says that Wachovia Securities is now the largest single user of the Richmond airport.
Wachovia Securities executives see Richmond as a winner on several fronts. “Richmond is a fantastic alternative to the securities industry professional who wants the most challenging environment, and I think we provide that here,” says Mooney. “No other firm on Wall Street has the mix of business that we do – the independent brokerage firm, the bank channel, the out-of-bank channel, the clearing house. When you add in the quality of life that Richmond offers, it’s a combination you can’t find anywhere in the world.”
-- December 7, 2005
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Daniel J. Ludeman
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