Oct. 13 (Bloomberg) -- Wells Fargo & Co. is likely to sell or pare the investment-banking business it's acquiring in the purchase of Wachovia Corp., analysts say.

The unit is likely to be ``significantly downsized after the acquisition,'' Standard & Poor's said in an Oct. 10 report. Charlotte, North Carolina-based Wachovia's corporate and investment-banking division employs more than 6,000 people and contributed about 16 percent of last year's revenue.

Wells Fargo's acquisition of Wachovia, valued at about $13.1 billion, gives the company the most branches of any U.S. bank and would rival Bank of America Corp. in terms of deposits. While Chairman Richard Kovacevich, 64, made expansion of the consumer franchise a priority, Wells Fargo said earlier this year that new investment-banking units don't fit easily with the rest of the company.

``They have enough to manage without the added complexity of an investment-banking operation,'' said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, in an interview. ``Those people aren't making much money in investment banking.''

Wachovia is the 14th-ranked underwriter of U.S. bond deals this year and number 12 in global equity offerings, according to Bloomberg data. Wells Fargo, based in San Francisco, isn't in the top 30 in either category.

The purchase also brings Wells Fargo the third-biggest U.S. securities brokerage and Wachovia's Evergreen mutual fund unit with more than $250 billion in assets, adding to Well Fargo's existing businesses.

Retail Priority

The company hasn't discussed plans for the investment bank since the Wachovia deal was announced Oct. 3. Wells Fargo spokesman Larry Haeg declined to comment.

``I'd expect Wells Fargo to scale back the Wachovia investment bank,'' said Jaime Peters, an analyst at Morningstar Inc. in Chicago. ``This deal is about the retail bank of Wachovia and I don't think they are that big of a fan of investment banking.''

Wells Fargo expanded its investment-banking business for smaller companies this year. Barrington Associates, which Wells Fargo purchased in 2006, opened an office in Boston in April to serve clients in the Northeast. The company also operates in San Francisco and Southern California.

The Federal Reserve approved the takeover of Wachovia yesterday. The Federal Trade Commission, which reviews antitrust issues, cleared the deal last week.

Wells Fargo rose $2.09, or 7.4 percent, to $30.40 in 4 p.m. New York Stock Exchange composite trading, lifting the value of the Wachovia purchase by about $900 million. Wachovia jumped 70 cents, or 14 percent, to $5.85.

Tumbling Fee Income

Wachovia's investment bank is suffering from lower revenue along with other capital-markets rivals. The corporate and investment bank earned $131 million during the first half of this year, compared with a $1.3 billion profit during the same period a year earlier. Fee income last year tumbled 63 percent from 2006 to $1.8 billion and declined more during the first half of this year as demand for advisory services and pooling of mortgages into securities plunged.

While the unit is likely to be spun off, it's hard to estimate a price because of the economic slump, said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, who rates Wachovia ``sector perform.''

``It may take some time considering the conditions for investment banking today are very poor,'' Cassidy said.

Wachovia shares surged 43 percent on Oct. 10 after Citigroup Inc. backed out of its bid for the bank's deposits, paving the way for Wells Fargo to complete the deal.

`Tough to Integrate'

Wells Fargo Executive Vice President Bruce Helsel said in March that the company was unlikely to build its investment- banking business, calling it ``tough to integrate.''

``We're not sure we understand the investment-banking business well enough to make it work,'' Helsel said at the Raymond James Institutional Investors Conference in Orlando, Florida.

With the acquisition of Wachovia, Wells Fargo will become the biggest U.S. bank by number of branches with 6,675. The banks will have combined deposits of more than $700 billion.

Wachovia's corporate and investment-bank staff grew 63 percent to a peak of 6,872 workers as of June 30, 2007, split mainly between Charlotte and New York. The unit employed 6,394 workers on June 30 and former Chief Executive Officer Kennedy Thompson has told analysts more job cuts were likely. Wachovia spokeswoman Christy Phillips Brown declined to provide a more recent number and said it's too early to know how the deal will affect the investment bank.

Underwriting

Stephen Cummings has headed investment banking at Wachovia since 1998 when Wachovia's predecessor, First Union Corp., acquired Bowles Hollowell Conner & Co., a Charlotte investment- banking firm where he was chief executive officer.

In recent years, Wachovia grabbed a greater share of underwriting fees from rivals including Credit Suisse and Deutsche Bank AG. From 2001 to 2007, Wachovia rose to fourth from eighth in U.S. syndicated loan underwriting and to 10th from 17th in U.S. bond sales, according to Bloomberg data. In U.S. equity offerings, it jumped to 12th from 16th.

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net.

Last Updated: October 13, 2008 16:30 EDT