Montgomery May Be Sold to NationsBank

Owners of Montgomery Securities are expected to vote this weekend on an agreement to sell California’s largest investment bank to NationsBank Corp., the fourth-biggest U.S. bank, for about $1 billion, sources said.

The deal would be the latest in a wave of acquisitions sweeping the investment banking industry in the wake of new rules easing restrictions on commercial bank involvement in the lucrative securities industry.

Montgomery’s 68 partners could vote on the agreement as early as today at their annual meeting in San Francisco. If ratified, it would be the fourth sale of an investment bank to a commercial bank this year.

Founded in 1971, the San Francisco-based company has sought more capital to expand its operations. The privately held firm has grown rapidly by raising capital for Silicon Valley’s high-tech firms and other fast-growing companies, taking more than 120 firms public through first-time stock sales in the last five years, according to CommScan, a New York data firm. Montgomery employs about 1,400 people, up from 364 in 1990.

Like many major commercial banks, Charlotte, N.C.-based NationsBank has been eager to acquire a brokerage firm and obtain a larger share of the securities business, which offers higher returns than traditional commercial banking.

“Strategically, this deal makes sense, but it’s not all wine and roses,� said R. Harold Schroeder, a banking analyst at Keefe, Bruyette & Woods in New York. “There are some cultural issues here.�

Schroeder said it may behoove NationsBank to leave Montgomery’s investment bank culture alone, letting it continue to operate with a more aggressive, entrepreneurial style. It may even be an advantage that Montgomery is located on the opposite coast from NationsBank, providing the investment bank more autonomy, he said.

Montgomery, with an estimated $750 million in revenue last year, was the nation’s 10th-largest stock underwriter in 1996, according to Securities Data Co. Montgomery’s clients include Thousand Oaks-based Amgen Inc. and semiconductor firms such as OnTrak Systems in San Jose.

While the estimated $1-billion purchase price for Montgomery seems high, Schroeder noted it represents only 2% of NationsBank’s $40-billion market capitalization. Although it is about five times Montgomery’s estimated book value, it is in line with the increasingly high prices being paid for investment banking firms of late, he said.

Earlier this month, BankAmerica Corp. agreed to buy Montgomery rival Robertson, Stephens & Co. in San Francisco for $540 million, a price tag that also represented about five times the book value for the company. Earlier this year, Swiss Bank Corp. said it would acquire Dillon, Read & Co., and Bankers Trust New York Corp. agreed to purchase Alex. Brown Inc.

Executives at NationsBank and Montgomery declined to comment.

NationsBank shares fell $1.375 to close at $65.25 on New York Stock Exchange.