The country’s largest bank is edging its way into L.A.’s robust middle market, and in the process it is snapping up local bankers.

Chase Bank, owned by New York financial behemoth JPMorgan Chase & Co., has poached talent from some of its top local rivals in a bid to establish a middle-market commercial banking division in Los Angeles.

Senior bankers from competitors such as Wells Fargo & Co. and Bank of America Corp., the market leader in L.A.’s middle-market commercial banking sector, recently have been hired away to build Chase’s executive team.

“L.A. is a middle-market town,” said Robert Lagace, Chase’s president of middle-market banking in Los Angeles, who worked for Bank of America until 2006. “It’s probably one of the most important markets we could possibly be in. We’re building a team specifically to address that market.”

The initiative to establish the middle-market division follows JPMorgan Chase’s acquisition last year of failed thrift Washington Mutual, which immediately boosted the New York bank’s retail branch network. However, neither Washington Mutual, which had the second largest banking operation in Los Angeles prior to its collapse, nor Chase had a middle-market commercial division in Southern California.

Headquartered in downtown Los Angeles, Chase’s new middle-market operations currently consists of five senior bankers focusing on separate areas of the county. Lagace said he expects to bring in several additional bankers in the next year and said he will look both internally and externally to fill the positions.

The bank also expects to open as many as three commercial banking offices in the next couple of years. The offices will offer business loans, investment banking services and related products to businesses with annual revenues between $10 million and $500 million.

Important sector

Whe middle market, a somewhat nebulous category comprising companies bigger than startups but smaller than large corporations, has historically been an important part of the L.A. economy and a lucrative target for banks. Los Angeles ranks with New York and Chicago as the largest middle-market economies in the country.

“Middle-market banking is an important part of the banking model,” said Tom Kersting, an analyst at St. Louis-based Edward Jones & Co. who follows Chase. “This is a good opportunity for them; California is a big market.

When assembling his team, Lagace interviewed about 50 bankers to fill the handful of positions.

In his search, however, he said he targeted several bankers at competitors. Among his hires, Lagace snagged three senior vice presidents who worked locally: Ivy Wong, who was at Wells Fargo’s West Covina office and will handle San Gabriel Valley business; Scott Lane, who worked in Bank of America’s downtown L.A. office and will head the San Fernando Valley operation; and Karl Brier, who worked for G.E. Capital and will cover south Los Angeles County.

“We targeted these folks; they were doing quite well at their institutions,” Lagace said. “Initially I wanted to start off with folks who knew the market. It’s always a challenge to find the best talent and that’s what we were after.”

Still, he acknowledged the challenge of going up against established players in a large market like Los Angeles: “We’re starting from scratch.”

JPMorgan Chase, a banking giant with $2 trillion in assets, had virtually no presence commercial or otherwise in Southern California prior to last fall’s financial market crisis.

But as Washington Mutual, a Seattle-based savings and loan with a major West Coast presence, succumbed to billion-dollar losses late last year, JPMorgan Chase saw an opportunity. The institution snapped up the assets of Washington Mutual for $1.9 billion after regulators shut down the thrift last September.

The opportunistic acquisition instantly gave JPMorgan Chase a major presence in Los Angeles, where Washington Mutual counted nearly 200 branches. With 10.9 percent of L.A.’s deposits as of last summer, Washington Mutual was the second largest financial institution in Los Angeles by deposit market share, behind only Bank of America.”

Ditched brand

Wn an interview earlier this year, JPMorgan Chase Chief Executive Jamie Dimon said the bank intended to do away with the Washington Mutual name because it had “become a tainted brand.” The institution has since converted all state branches of Washington Mutual to Chase Bank amid a multimedia ad blitz promoting its retail services. But the acquisition did little for its commercial banking side.

“Outside of real estate and small business banking, Washington Mutual did not have a commercial banking presence,” Lagace said.

Now, Chase is trying to go toe to toe in the local market with heavyweights such as Bank of America, the market leader in L.A.’s middle-market commercial banking sector.

With a team of 50 bankers and roughly $3 billion in outstanding loans, Bank of America’s local middle-market division dwarfs that of Chase.

Though much of the industry has struggled through the recession, Bank of America has actually been able to pick up middle-market customers in Los Angeles this year as other large institutions have faltered, said George Smith, the executive vice president in charge of the bank’s Pacific Southwest commercial banking division.

What’s more, Smith anticipates additional business as a result of cross-selling opportunities with clients of Merrill Lynch & Co. Inc., the investment banking firm acquired by Bank of America in late 2008.

“Overall, we’re doing pretty well,” he said.

Smith said he welcomes Chase as a competitor and he is unconcerned about the challenge it poses. He also brushed off the notion that Chase poses a significant threat to steal talent.

“I’m not worried about it,” he said. “People try to take our people all the time. We’ve had pretty good retention.”

Lisa Stevens, regional president of Wells Fargo’s California community banking division, said in a statement to the Business Journal that the bank welcomes “good competitors in the California market because it is ultimately good for the consumer.”

Though Chase acknowledges that it will take time to catch up to its rivals, experts give the bank a good chance to compete.

James Barth, a senior fellow at the Milken Institute in Santa Monica, said Chase, one of the few banks to have repaid the government funds received under the federal Troubled Asset Relief Program, is a strong institution, which bodes well for its expansion efforts.

“JPMorgan Chase has come out of this so-called banking crisis in pretty good shape,” he said. “If you’re going to serve the middle market and be closer to your customer, that’s typically where there have been fewer problems. It should be able to compete with other banks.”