Atlanta and Cleveland are far from Wall Street, but regionalbanks in those and other U.S. cities are mimicking their biggercompetitors by plunging into capital markets.

SunTrust Banks, KeyCorp and Citizens Financial Group are amonglarge regional lenders that have been building out theirinvestment-banking capabilities as stubbornly low interest rateshave crimped profits. Now they're reaping the benefit, reportingrecord fee income from the units in the first half of the year.

Investment-banking revenues at seven of the 11 largest regionalbanks that break out results for the business climbed a combined$339 million in the first half of the year. The lenders areoffering merger advice, debt underwriting and help raising capitalto the same types of middle-market companies that they've longprovided with routine banking services. That segment of the markethas been eager to grow in recent years, with 31% of executives in arecent SunTrust survey saying they'd like to make a major capitalinvestment over the next five years and 17% interested in acquiringanother company.

To be sure, the regionals' operations are still dwarfed by thoseof Wall Street behemoths like JPMorgan Chase, which generated $1.8billion in second-quarter investment-banking fees. But the factthat smaller firms are posting revenue gains in that business in aquarter where Goldman Sachs Group reported a 3.2% drop from a yearearlier speaks to the appeal of their offerings.

“It's been a very distinctive part of our business model,”KeyCorp CEO Beth Mooney said in a telephone interview. “Wall Streetis much heavier into trading and market-making activities than corerelationship investment banking and advisory for middle-marketcompanies. This is reflective of our relationship strategy, thisbusiness only generates revenue from our core customer base.”

SunTrust has been especially active in augmenting itscapabilities, saying last year it planned to hire 200 peopleas part of a push to increase mergers-and-acquisition advice tomid-size companies. The lender also has expanded beyond its homebase in the U.S. Southeast, opening offices in San Francisco,Chicago and Dallas among other cities. Revenue from investmentbanking rose 17% last quarter from a year earlier to $147 million,due to stronger deal flows in syndicated finance and M&Aadvisory, the company said last Friday.

KeyCorp's investment-banking and debt placement fees climbed 38%to $135 million in the quarter, as more of its clients turned tocapital markets over loan products, the company said last Thursday.The Cleveland-based lender also has been adding employees,including strengthening its equities sales and trading team.

At Providence, R.I.-based Citizens Financial, capital-marketsfees climbed 34% to $51 million, a move CEO Bruce Van Saunattributed to its strong loan syndication business. In May, thebank acquired Western Reserve Partners, a Cleveland-basedmerger-and-acquisition advisory firm, adding about 30 bankers toits capital-markets unit.

“We've always been punching a little bit above our weight” incapital markets, Van Saun said last Friday in a telephoneinterview. “We've added to the overall heft and quality of what wehave in terms of the capital markets effort, so it's thecombination of a growing customer base and expanded capabilitiesthat allows us to see that traction.”

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