Slow dance: late to pair up, will Wachovia and Interstate/Johnson Lane miss the rifts experienced by other banker-broker matches?

• Author: Speizer, Irwin

Jim Morgan is at his sixth-grade dance, boys on one side, girls on the other. The boys have agreed: no dancing. But the defections begin with the music. And there stands Morgan among a dwindling pack of nervous lads. "I remember everybody having the panic feeling: We better go find someone quick before we end up dancing with someone we don't want to."

Morgan had good reason to feel just as panicky last summer. The chairman and CEO of Interstate/Johnson Lane Inc. had kept his Charlotte-based brokerage off the dance floor so long nearly all the good partners were taken. Brokerages all around him had rushed into mergers with banks, leaving IJL one of the Southeast's last wallflowers.

Morgan insists he was never worried. The other brokerages may have subscribed to the adage that he who hesitates is lost, but Morgan maintains he was guided by another: Good things come to those who wait. And in the end, he found his belle: Wachovia Corp., the venerable Winston-Salem banking giant that had come to the dance late.

Wachovia's $230 million acquisition of IJL, expected to close April 1, brings together two of the region's last holdouts in the consolidation of the brokerage and bank industries. For IJL, it provides deep pockets to keep up with the rest of the securities industry. Wachovia has $66 billion in assets, making it the nation's 16th-largest bank. For it, IJL provides securities-sales talent to compete against the region's other big banks. IJL's 466 brokers brought in about three-fifths of its $279 million in revenues in 1998.

To hear IJL and Wachovia tell it, it's the perfect match - the right deal with the right companies at the right time. "When we finished, we said to ourselves, these are the kind of people that we would like to be partners with," says Robert McCoy, Wachovia's senior executive vice president and CFO. "We liked each other."

By and large, though, broker-banker mergers have been messy affairs, punctuated by the resignations of some of the high-priced talent the banks were buying. "There is not a great record of performance when banks go outside banking," concedes Wachovia President and CEO Bud Baker. "If we were going to do it, we would try to do it right, see if we could sidestep some of the problems that come with these mergers."

The difficulty is integrating a brokerage's independent, sales-driven culture into a bank's conservative, hierarchical operation, particularly one as cautious as Wachovia. Bankers work from policy manuals. Brokers work off their own client books. Wachovia vows to let the brokers function as brokers instead of trying to turn them into bankers.

"Their worry will be that Wachovia will step in and force them to do things the Wachovia way, whatever that is," McCoy says. "That is not the intention. We're not going to acquire somebody and force a whole bunch of Wachovians down there."

Other banks have said the same thing. "In most of these deals, somebody wins, somebody loses," says Tony Plath, banking professor at UNC Charlotte. "One culture is dominant, the other becomes subsumed. Brokerage firms are the ones that change in these deals. Who bought whom here?"

Still, when Baker told him Wachovia wouldn't try to remake the brokerage in the bank's image, Morgan believed him. "We've all been through sweet-talking," he says. "There was not one doubt in my mind he was totally sincere in what he was saying." As part of the deal, Morgan becomes CEO of Wachovia Securities Inc., a new division that will include...