DEAL WATCH: NORWEST-WELLS: THE PIECES FIT — SEEN LARGELY COMPATIBLE IN INVESTMENT AREA, WITH REGIONAL-STYLE BROKERAGES

If these banks don’t watch out, people might start confusing them with real securities firms.

The latest in a spate of big bank merger agreements — this time a $34 billion stock deal between Minneapolis-based Norwest Corp. and San Francisco-based Wells Fargo & Co. — would create an asset-management and brokerage operation to rival BankAmerica Corp. and Banc One Corp., the other superbanks-to-be.

In the investment arena, the two appear to be largely compatible. Furthermore, Norwest Chairman and CEO Richard M. Kovacevich, who is to be president and CEO after the merger, has demonstrated a light touch in past mergers when it comes to job cuts and cost savings.

“I like it,” Josephthal & Co. analyst Frank Barkocy says of the deal. “(Norwest’s) relationship banking, the cross-selling mentality, the retail mentality, would do wonders in most of the markets in which Wells operates.”

smoother transition likely

If Mr. Kovacevich stays true to form, the new Wells Fargo — as the merged bank is to be called –could avoid some of the confusion that already has befallen the investment units of NationsBank Corp. and BankAmerica, whose merger would create the nation’s biggest bank.

Indeed, just last week, BankAmerica said it would sell Robertson Stephens Investment Management, the asset management unit it acquired only months ago when it purchased investment bank Robertson Stephens & Co. Robertson Stephens’ investment banking business — deemed incompatible with NationsBanc Montgomery Securities — recently was sold to BankBoston Corp. for $800 million.

Norwest and Wells Fargo’s brokerage units “are compatible in some ways because both see themselves as regional brokerage firms,” says Kenneth Kehrer, a Princeton, N.J., bank industry consultant. “They’re emulating regional brokerages.”

In scale, the similarities are striking. Norwest employs 390 full-service brokers in bank branches — Mr. Kovacevich, a customer-service preacher, insists on calling them “stores” — in 16 states throughout the Midwest, West and Southwest. Wells Fargo Securities, the San Francisco bank’s brokerage unit, boasts 340 reps stationed all over California and Arizona, as well as in the Salt Lake City, Las Vegas, Denver, Houston, Dallas, Reno, Nev., and Portland, Ore., areas.

Revenues from Norwest’s brokerage operations are expected to be about $200 million this year; Wells Fargo’s brokerage revenue for the last 12 months is about $140 million.

There are some differences, though. Norwest is one of the few banks allowed to run a full-fledged insurance agency, a right granted it decades ago as lawmakers wrote the banking laws that bar banks from that business.

As a result, Norwest brokers generally are licensed insurance agents, and Norwest is by far the banking industry’s biggest seller of insurance.

So it’s no surprise that Norwest distributes the variable annuities of about a dozen insurance carriers, in addition to its own proprietary variable annuity underwritten by Fortis Benefits Insurance Co. of St. Paul, Minn.

Wells Fargo, by contrast, sells only the Putnam Capital Manager variable annuity in addition to its own, which is underwritten by Shelton, Conn.-based American Skandia Life Assurance Corp.

Additionally, unlike Norwest, Wells Fargo has moved to mesh its private bank, trust and brokerage operations. Its brokers are trained to provide comprehensive financial consulting, offering trust services as well as handling the investment needs of private-banking clients.

Assets under management from these well-heeled clients are about $55 billion, while assets from less well-to-do retail brokerage clients come to about $14 billion.

an emphasis on variety

“The thrust here has been to transform this from a bank brokerage business to a full-service brokerage business that’s fully integrated with the private bank and trust company,” says Dennis Mooradian, president of Wells Fargo Securities.

About 50% of Wells Fargo’s sales are proprietary products, but they’re not emphasized as strongly as, say, Banc One’s are. Case in point: Wells just launched a traditional brokerage wrap account with a choice of 35 outside money managers.

Another difference: Several months ago, Wells Fargo outsourced virtually all of its technology, clearing, equity research and other needs to Morgan Stanley Dean Witter & Co. Norwest has put together its own technology, Mr. Kehrer says.

On the mutual fund side, the merged company will be the nation’s third largest bank fund complex (combined assets today would total around $45 billion, although more than half of that is in short-term money market funds).

Still, both banks’ funds have been mediocre performers. Of the 27 long-term funds in Wells Fargo’s Stagecoach family, seven sport four stars under Morningstar Inc.’s one-to five-star scale. None of the funds has the top rating.

Norwest has 38 long-term portfolios, including five four-star and three five-star funds.

In recent months, Norwest’s equity and fixed-income funds have drawn healthy net cash inflows, while Wells Fargo has suffered continual net redemptions in its bond funds, according to data from Boston-based fund tracker Financial Research Corp.