Two more nonbanks opened trust companies last week, treading further onto turf that private banks once totally dominated.
Fidelity Investments expanded its three-year-old personal trust business by setting up shop in Los Angeles. To run the new California subsidiary, the Boston mutual fund giant hired R. Daniel Banis away from BankAmerica Corp., where he had been a vice president in trust administration
Lehman Brothers last week unveiled its trust company, hoping to duplicate the success that other Wall Street firms - including Morgan Stanley & Co. and Bear, Stearns & Co. - have had in the trust business.
Each is intent on serving wealthy clients who traditionally have used banks to set up trusts. Nonbanks seek fee income and increasingly are pursuing their own trust charters.
Nonbanks "are becoming more territorial by binding wealthy clients closer with a trusteeship," said John S. Carusone, president of Bank Analysis Center, a Hartford, Conn.-based investment banking firm.
With its second charter, Fidelity Management Trust Co. claims immediate access to more than 300,000 households that use Fidelity's 12 investment centers in California.
"How we distinguish ourselves is the application of our investment expertise," Mr. Banis said. "Some traditional clients and organizations, like Heirs Inc., have been critical of banks' investment style."
Lehman Brothers Trust Co. initially will work with the firm's institutional clients, hoping to fill their securities lending needs. The unit also plans to sell its services to Lehman's wealthy clients.
"By having the trust company facility, we'll be able to provide private banking services to our high-net-worth customers," said Andrew R. Pettit, Lehman president of Lehman Brother Trust Co.
Many nonbanks - including Charles Schwab & Co., Merrill Lynch & Co., Legg Mason Inc., and Raymond James & Associates Inc. - have used trust departments to gain a large share of the wealth market, but some bankers say they are not threatened.
"A lot of these institutions are getting into the trust business, because everybody else is doing it," said Curtis Lyman Jr., president of Sun Trust Banks Inc.'s private capital group in Orlando. But many suffer from a lack of "a long-term business plan," said Mr. Lyman, former president of Raymond James Trust Co.
Others warn that private bankers should not be too quick to dismiss their new competitors.
"Nonbanks come at it with more investment management resources - that gives them an advantage," said Bradford I. Hearsh, a managing director in PaineWebber Inc.'s investment banking division. "On the other hand, the banks have the banking relationships."
