Comerica Inc.'s planned spinoff of a major piece of its money management operation is shaping up as a pointed reminder of a big barrier to banks' ambitions in the investment business.
To attract talented money managers, retail investment sellers, and investment bankers, experts say, banks must be willing to embrace big-figure compensation schemes.
Yet the prospect of creating a new echelon of highly paid investment specialists is at odds with banks' traditionally spend-thrift ways. Many banks are believed to have difficulty stomaching the change.
Comerica, with its announcement last week that it is handing two money management units to a privately held firm, has acknowledged that it was one of them.
"To us this represents a great way to build the business to a level we couldn't build under the other structure," said Comerica executive vice president George C. Eshelman.
Under the agreement, Comerica will transfer two subsidiaries -- Woodbridge Capital Management and World Asset Management -- to Munder Capital Management, Birmingham, Mich.
The combined entity, with $30 billion in assets, will rank among the 75 largest money managers in the country, with about 150 employees. In return, Comerica will get an undisclosed minority stake in Munder Capital, which will be led by its founder and current chief executive, Lee Munder.
The deal is subject to regulatory approval, which is expected by yearend. The transaction is not expected to have a material impact on Comerica's earnings in the near term, though officials hope it pays dividends in the long term.
One of the main benefits for Comerica is climbing into bed with a formidable competitor in the asset management business, Mr. Eshelman said.
Munder has proved remarkably adept at attracting assets since its founding in 1985, and now has more than $8 billion of assets under management.
By no means is Comerica a slouch at managing money. The two units it is handing over to Munder have a combined $22 billion of assets, including Comerica's $4.6 billion-asset family of proprietary mutual funds.
Mr. Eshelman said that Comerica's investment advisory revenues are in the "high teens" of millions of dollars annually.
But he added that Comerica's investment management business has been growing at only a "mid-single-digit pace over the past couple of years," in reference to the yearly percentage increase in revenues.
"That's not the kind of growth we would like," Mr. Eshelman said.
Joining with Munder could boost Comerica's investment management growth substantially, he explained. But, just as important, Mr. Eshelman said the deal gives Comerica a better way to hang on to talented portfolio managers.
Munder, like other privately held money managers, rewards its star employees with potentially lucrative stock holdings. Comerica hasn't been able to do this, Mr. Eshelman said.
As a result, over the years it has lost several star stock and bond pickers, he said.
Munder has been one of the biggest raiders. Mr. Munder said that nearly half of his current roster of 73 employees have come from Comerica, or Manufacturers National Corp., which merged with Comerica in 1992.
Mr. Eshelman said he hopes Comerica's talented portfolio managers will be more interested in staying on board after the merger.
But there are risks to the deal. One is that Comerica could have a hard time convincing institutional clients that it can effectively manage an investment firm in which it has only a minority interest, warned George H. Walper Jr., a consulting director in Chicago with Spectrem Group, which advises banks on trust and investment management.
Certainly, Comerica's approach runs counter to the prevailing trend in the industry. Banks are looking to buy money managers in whole, rather than sell off controlling interests in them.
Two big acquisitions announced this year are Swiss Bank Corp.'s $750 million purchase of Chicago money manager Brinson Partners, and PNC Bank Corp.'s $240 million offer for BlackRock Financial Management, New York. Mr. Walper said his firm is advising "several" banking companies on their search for other acquisitions.
He added that banks that are truly committed to the money management business have been able to devise ways to pay their portfolio managers competitive wages.
Among those to do so is PNC. The Pittsburgh-based company has agreed to pay the partners of BlackRock between $5 million and $50 million each to stay on for five years after the acquisition, according to BlackRock chairman Laurence D. Fink.
He said the offer, and PNC's handling of the deal, has kept BlackRock's senior managers and partners from leaving.
