Two years after buying Equitable Securities for $150 million, SunTrust Banks, Inc. (STI) has yet to reap the reward it expected.

Now, the Atlanta-based bank is proposing to reduce what it was to pay for the local investment banking and brokerage firm -- effectively rewriting the terms of the 1998 merger agreement. SunTrust also wants to restructure its relationship with the subsidiary in a way that would leave Atlanta with more control.

The merger originally was heralded as a relatively cheap way for SunTrust to capture some of the lucrative investment fees being paid by their blue-chip corporate clients. SunTrust, with its reputation for reliably serving the debt financing needs of such low-risk customers as Coca-Cola(KO), previously didn't offer equities underwriting services. It was hoped that the commercial bankers at SunTrust would refer clients who needed stock underwriting to Equitable, while Equitable's investment bankers would refer their fast-growing, small-company clients to SunTrust for their credit needs.

But it hasn't worked out that way. The two departments haven't meshed. There's been little synergy. Companies like Coke already have legions of analysts and investment banks serving them. And the type of loans Equitable clients typically need don't fit the more conservative profile of SunTrust's traditional loan portfolio.

Bringing matters to a head, Equitable's investment banking department had a terrible 1999. Its market-share in the investment banking universe plummeted by two-thirds, to just 0.7%, according to figures cited recently by The Wall Street Journal.

Add a costly new SunTrust Equitable stock research office in Boston, the departure of the head of investment banking, Wall Street's aversion to the small capitalization stocks on which the firm focuses, the collapse of trophy health-care clients like PhyCor Inc. (PHYC), similar declines in the specialty-finance area and heightened competition from large national investment bankers, and it's not hard to see why Equitable is badly missing profitability targets.

"The ship isn't sinking," said someone with knowledge of SunTrust Equitable's performance. "The ship is trying to find a new course."

Publicly, the parent company is keeping a stiff upper lip. "SunTrust is generally pleased with the performance of the SunTrust Equitable subsidiary," said company spokesman Barry Koling. Mr. Koling returned a call made to John Clay, Jr., the former Third National Bank president who recently assumed responsibility for overseeing the Equitable unit from E. Jenner Wood, SunTrust executive vice president.

Mr.Koling declined to address specific questions about the financial performance of SunTrust Equitable or provide reasons for the proposed change in merger terms. "We continue to invest for the future and look forward to a future of further integration and working closely together," he said.

The proposed merger agreement, assuming it receives the required 90% approval from Equitable's owners, will ensure a closer relationship, maybe even a bear hug. It calls for bringing five key areas under the umbrella of a new "corporate" division: investment banking, capital markets, equity trading, institutional sales and research. Mr. Clay in Atlanta and Will Johnston, who heads Equitable, would likely oversee the proposed division.

Precise details of a restructured SunTrust Equitable are not yet well understood even by some of the firm's employees. The original merger agreement in January 1998 has been described as very complicated. The amended plan is said to be even more so. NashvillePost.com tried twice to reach Mr. Johnston but was unsuccessful.

One goal of the proposed changes is to provide a financial incentive for commercial bankers to turn over some of their client relationships to the investment bankers, possibly through some sort of revenue-sharing arrangement. Such a change can't be made under the existing merger agreement without breaching terms of the agreement itself. As a result, the agreement has impeded cooperation between commercial banking and investment banking.

The Post was told that the late summer departure of Equitable's longtime head of investment banking, Roger Briggs, could facilitate a closer relationship between the two banking camps.

"Roger was not a bank person," said a source familiar with the relationship who holds Mr. Briggs' investment banking skills in high regard. "He didn't have a lot of patience for the culture of SunTrust in trying to work out some structure with the commercial bankers. "He didn't want to (mess) with them and he didn't want them to (mess) with him." Mr. Johnston, along with Mr. Clay, has assumed control over investment banking since Mr. Briggs' departure.

NashvillePost.com contacted Mr. Briggs but he, too, declined to comment.

Others explained that recently departed SunTrust Equitable employees, including Mr. Briggs, refused to comment because they had signed confidentiality agreements in return for SunTrust's ending noncompete agreements that took effect when the bank bought Equitable.

NashvillePost.com was told by another source that in addition to the possible culture clash, Mr. Brigg's departure was hastened by his purported opposition to multi-million dollar investments in several projects, including the hiring of the technology stock research team in Boston. He is said to have urged the company's leaders to adapt to leaner times and tighten pay across the board to preserve capital.

But the institutional and retail brokers clamored for research support in the very popular technology and Internet fields. The firm's leaders decided not only to open the office in Boston, but also to hire highly regarded regional airlines analyst Jim Parker in Atlanta and an institutional salesperson in New York.

Sources within the firm say that the new Boston and Atlanta analysts have generated valuable investment ideas. In fact, their ideas have helped make SunTrust Equitable's stock-trading operation on the eighth floor of the Nashville City Center busier than ever. Generating some of this trading activity was the company's Private Client Group, which fared surprisingly well in 1999, especially considering the poor performance of many stocks followed by SunTrust Equitable's research department.

Even so, most boutique investment firms earn the biggest profits from relationships that analysts develop with companies they cover. The initial and secondary stock offerings by the companies produce investment-banking fees that dwarf whatever profits brokerage firms earn from clients trading the companies' shares.

With analyst compensation packages bid to $1 million and higher in recent years, it may prove difficult for SunTrust Equitable to recoup its costs in the Boston office through investment banking fees or commissions.

Fees generated by the health-care industry investment banking team, under the leadership of Riley Sweat, are said to have been close to their targeted level in 1999. Given the meltdown in the physician-practice management industry, led by one of the firm's most prominent accounts, PhyCor, such a performance should hearten SunTrust executives in Atlanta. Taking up some of the slack has been Renal Care Group Inc. (RCGI), a Nashville-based operator of 181 outpatient dialysis centers. Clients like Renal Care should be especially helpful, considering the departure of former Congressmen Jim Cooper and others, who left Equitable last summer to establish a new investment banking firm called Brentwood Capital Advisors.

Overall, SunTrust's challenge with the Equitable unit should be surmountable if the bank digs in its heels as it appears at last to be doing. After all, banks have been acquiring regional brokerage firms at a healthy clip in recent years, sometimes with good results. NationsBank (now Bank of America BAC) appears to be successfully integrating Montgomery Securities into its operations, while Wachovia Corp. (WB) seems to be doing the same with its year-old acquisition of Interstate/Johnson Lane Inc.

SunTrust Equitable's future may well hinge on how its former owners vote on the proposed changes. SunTrust has shown a measure of good faith in some Equitable employees' eyes by awarding them more SunTrust stock than required in year one of the five-year "earn-out" agreement. Last year, year two, the unit's failure to achieve profit goals ordinarily would have cost them their shares for the year. But the proposal calls for granting them shares for 1999 and for 2000, regardless of performance. There the stock payments would end. Years four and five would not be paid.

The bottom line is this for Equitable shareholders. They received 1.3 million SunTrust shares when the deal closed in January 1998. They expected to earn an additional 909,000 shares over five years by meeting certain profit targets, according to industry consultant SNL Securities. The proposed changes would reduce the additional shares to 545,000. Those shares, plus the ones received in 1998, still result in a sales price for Equitable of more than four times book value -- more than what Interstate/Johnson Lane got from Wachovia.

A "yes" vote means more control from Atlanta, deeper pockets to fund expensive information systems improvements, continued culture clashes in the near term and a better chance to still be in business five years from now.

And a "no" vote? One Equitable veteran speculated about a worse-case scenario: SunTrust gets mad, "says 'to hell with it,' and in two or three years collapses the operation and moves the remains to Atlanta.