The landscape of the Milwaukee area’s financial services industry is changing dramatically as two of its largest players, Strong Capital Management and Robert W. Baird & Co. Inc., are on the verge of historical transitions.
Menomonee Falls-based Strong Capital Management, which employs about 1,000 people locally, recently announced it will be acquired by San Francisco-based Wells Fargo.
Also, employees of Milwaukee-based Baird announced recently they have completed their purchase of the company’s shares formerly owned by Milwaukee-based Northwestern Mutual Life Insurance Co. Baird has about 1,000 employees in the Milwaukee area and about 1,300 to 1,400 within 50 miles of Milwaukee.
Will Strong and Baird maintain high levels of well-paid employees in the Milwaukee area for the long-term future? Executives for those firms say, yes.
"We anticipate there will be a huge presence in Menomonee Falls," said Michael Niedermeyer, executive vice president of investment management business for Wells Fargo. "We believe Strong represents a really remarkable collection of investment talent, client services talent and distribution. The combination of our skill set and Strong’s skill set really complement each other."
Paul Purcell, president and chief executive officer of Robert W. Baird, said his firm has no plans to move its headquarters.
"We have a very good labor force here and a very good presence in Milwaukee," he said. "We don’t see any reason to change that."
Strong agreed to be sold to Wells Fargo shortly after its founder, Richard Strong, reached a settlement with federal, Wisconsin and New York state regulators banning him from the mutual fund industry and requiring him to pay $60 million for engaging in improper trading. The company’s penalties from the settlement total $115 million.
The Strong scandal was in the news for months, resulting in customers withdrawing billions of dollars from the company’s mutual funds.
Now, Wells Fargo and Strong executives hope to reverse the company’s fortunes.
"During October, November and December, there were pretty hefty outflows," said Ken Wessels, chairman and chief executive officer of Strong Financial Corp. "That was at the height of the press coverage and the uncertainly of what was going on. I think now that we have resolved the regulatory issues and announced the Wells Fargo acquisition of Strong, two enormous unknowns have been taken out of the picture. I expect we will now see inflows."
Strong and Wells Fargo officials say they have not determined how many employees will remain in Menomonee Falls, but they acknowledge there will be some cutbacks.
"There are some overlaps," Niedermeyer said. "Those are going to be obvious areas."
Wells Fargo has committed to keeping a call center in Menomonee Falls. Niedermeyer said many of the analysts will remain there, as well. The trading desk will also remain in Menomonee Falls, Wessels said.
"We plan on keeping the vast majority of investment professionals and trading functions where they are," Niedermeyer said.
The cost of living in California drives up labor costs and makes it a lot more expensive to operate a call center there than in Wisconsin, Niedermeyer said.
"Our cost to operate that entity is a fraction of what we would be paying in California," he said.
Although Milwaukee is a medium-sized city located in the middle of the country, it is still a viable place for companies in the financial services industry, Wells Fargo and Baird executives said. Financial services companies do not have to be located in major financial centers such as New York, Chicago or San Francisco to be successful, they said.
"Success in the financial services industry is not so much about location, it’s more about talent," Niedermeyer said. "The Milwaukee area has a lot of talent to offer."
"We think (Milwaukee) a great labor market," Purcell said. "We have terrific employees who have great knowledge and a wonderful work ethic. We like being based here. It’s not the easiest market to recruit in for young people, but Milwaukee is a very nice place to live."
Modern communications technology makes the location of a financial services company less important today, Wells Fargo and Baird executives said.
As an independent company, Baird will be able to control its own destiny and continue to grow in Milwaukee, Purcell said. Baird has no plans to become a publicly traded company, he said.
"We think we’ve got a terrific company," he said. "Controlling our own destiny, we think is a very good thing for our associates, customers and clients. We’re staying employee-owned and independently held. We don’t need outside influence. We don’t need outside capital. We can stay focused on taking care of our clients."
Another financial services company based in Milwaukee, Marshall & Ilsley Corp., has been the subject of some speculation that it may become a takeover target. Forbes.com reported recently that stock for mid-cap banks may rise on speculation that they will be acquired. The report mentioned M&I and two other mid-cap bank stocks that could benefit from speculative interest.
Mark Furlong, executive vice president for M&I Bank, declined to comment on the speculation.
"It’s a very attractive franchise," said a banking industry analyst who asked not to be named. "My sense is they’re in no real hurry to do a deal. Fifth Third would love to take a look at them. Our sense is maybe in a three- to five-year period, instead of a one-to two-year period, M&I might be in an M&A situation. There’s no real necessity for them to sell. They’re on an upswing."
Furlong said the company, which has 12,228 employees, including 6,600 in the metropolitan Milwaukee area, has no plans to move elsewhere.
"M&I has been based in Milwaukee since 1847," he said. "Milwaukee has invested a great deal in M&I and likewise. We belong to each other, and it’s difficult to contemplate anything else."