As Advest's Stock Keeps Rising, Its Investment Banking Unit Slips Away

A month after it named a new chief for its investment banking division and vowed to compete against rival regional investment firms, Advest Group (ADV) has lost a dozen bankers, or more than half the unit's professional staff, according to people close to the company.

And research analysts, the right arms of successful bankers, are leaving the firm on a seemingly daily basis, including resignations Friday and Monday, these people said.

But the financial company's shares continued to climb, in part because of takeover speculation. The stock gained 2 7/8, or 10%, to close at 31 5/8 Monday, after hitting a 52-week high of 32 1/4. It has risen more than 60% since June.

Possible suitors for Advest include FleetBoston Financial(FBF) and Phoenix Home Life Mutual Insurance. Phoenix's chief executive sits on the Advest board, and its headquarters sits less than two blocks away from Advest's.

Martin Lilienthal, chief financial officer of Advest, and Michael E. Haylon, a director of Phoenix, both declined to comment on the recent stock movement and the talk of a merger, and Lilienthal, speaking for the firm, declined to comment on defections from the investment banking arm.

But Goldman Sachs confirmed a report in the Daily Deal last week that it had been hired to explore a possible sale.

Meanwhile, defections have accelerated in the investment banking business. Advest hired some 60 bankers a year ago, but its investment banking revenue fell 66% to $3 million in the third quarter, the company reported on July 20. (Overall revenue increased 14% to $99.1 million.) Two days prior, Advest named James P. Jenkins its new senior managing director, head of investment banking. On the day the firm reported earnings, company officials told the Dow Jones News Services that 22 investment bankers were on its staff and that Jenkins had been charged with competing against rival regional banks.

The job would be daunting, and success may never have been in the cards, people close to the company now say. A company directory compiled since then lists 17 members of the banking division, including 14 remaining investment bankers.

But four of those bankers have resigned, people close to the company said. Tom Rudkin, Richard Quad and Steven Duong, investment bankers who specialize in the financial sector, all joined Tucker Anthony. The fourth resignation came from Dennis Claffey.

Meanwhile, in recent months several Advest analysts have departed for such disparate destinations as KPMG, Summit Partners, PaineWebber (PWJ), William Blair, and newmediary.com.

Regional investment banks have come under increased pressure to consolidate since the Swiss banking giant UBS(UBS) said in July that it would buy the PaineWebber for about $15 billion in cash, stock and assumed debt. The announcement followed PaineWebber's $620 million purchase of J.C. Bradford & Co., whose brokerage operations are concentrated in the Southeast. The deal closed Aug. 12.

While acquisition targets often seek to retain intellectual capital before a sale, Advest may be pursuing a passive strategy of building book value by allowing its investment bank operations to dissipate by attrition, the people close to the company said.

In contrast to the sluggish banking operations and negligible research force, the Hartford, Conn.-based company's sales force achieves an industry-high average of around $550,000 per broker per year, according to James Moynihan, senior vice president and director of the financial institutions group of Advest.

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