(Bloomberg) -- Wells Fargo & Co., the biggest U.S. home lender, is restructuring sales and trading operations to form a new markets division at its investment bank as the firm challenges more established Wall Street rivals.

The division will be one of five main units under the Wells Fargo Securities brand and include equity and fixed-income sales and trading, commodities, prime services and futures clearing, the San Francisco-based firm said today in a statement. Walter Dolhare and Tim Mullins will oversee the division and report to John Shrewsberry, 47.

Chief Executive Officer John Stumpf, 59, is seeking to narrow the gap with Wall Street firms including Goldman Sachs Group Inc. and Bank of America Corp. He’s building upon a corps of bankers that joined Wells Fargo after its 2008 purchase of Wachovia Corp.

The investment bank, while still a small part of Wells Fargo, is “an important piece” of the firm’s growth strategy, Joseph Morford, an RBC Capital Markets analyst who has an outperform rating on Wells Fargo shares, said before the announcement. “The trading gains were up in the quarter, and that’s largely related to activity in the investment bank.”

Stumpf and predecessor Dick Kovacevich built Wells Fargo into the fourth-largest U.S. lender by focusing on consumers and avoiding riskier trading and underwriting that felled some of the biggest investment banks. Stumpf told investors in January that he couldn’t “care less” how his firm fares in the ranks of investment banking, preferring to view such services as another product to sell to business customers if they need it.

‘Buy-Side Clients’

“It’s always made sense to think about the future as one where we face off with buy-side clients on a more cohesive basis,” Shrewsberry, head of Wells Fargo Securities, said yesterday in a phone interview. Combining the trading businesses under one roof also will make it easier to comply with new regulations, he said.

Third-quarter net trading gains more than doubled to $529 million from the previous three-month period amid “stronger customer accommodation trading results,” the company said in a presentation. The gains accounted for 5 percent of fee income.

Wells Fargo has advanced 23 percent this year through yesterday, matching the gain of the 81-company Standard & Poor’s 500 Financials Index.

Liquid Products

Businesses the bank has developed during the past three years now will be folded into the newly created division.

Wells Fargo announced in April 2010 that it was building a team to package and trade mortgage-backed securities. Last October, the company hired former Citigroup Inc. U.S. government-bond trader Cronin McTigue as head of liquid products sales and trading to create a business in Treasuries, swaps and options, according to a statement.

The lender also has sought to bolster its offerings for hedge funds and in the third quarter it completed the acquisition of Merlin Securities LLC, a prime brokerage that caters to hedge funds and other clients with as much as $2 billion in assets. The bank agreed in September 2011 to purchase LaCrosse Global Fund Services, a hedge-fund administration and service provider.

Wells Fargo also has grown in other securities businesses, including at units that won’t be folded into the new division.

Highest Share

The capital-markets and investment-banking unit, run by co- heads Rob Engel and Jonathan Weiss, has helped the lender seize a bigger share of U.S. corporate bond sales this year. Wells Fargo has underwritten 5 percent of sales in 2012, excluding self-led deals, up from 3.6 percent in 2009, according to data compiled by Bloomberg. That’s the highest share on record and ranks Wells Fargo eighth, up from 11th last year, the data show.

Last year, the lender hired former Citadel LLC’s investment banking co-chief Brian Maier and about two dozen others to take advantage of a decision by Citadel’s billionaire founder Ken Griffin to disband his securities business.

The co-heads of the markets unit are Wells Fargo veterans. Mullins has been at the bank for a decade and was named head of fixed-income trading in 2009 after sales and trading roles in credit, interest rates and commodities, according to the statement. Dolhare joined the firm in 1995 and was appointed head of fixed-income sales in 2004. Both were named co-heads of fixed-income sales and trading earlier this year.

In addition to the markets division and the investment- banking unit run by Engel and Weiss, Wells Fargo Securities includes asset-backed finance and securitization, run by Julie Caperton; research and economics, headed by Diane Schumaker- Krieg; and municipal products, led by Phil Smith.

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