First Bank System Inc. announced Friday that it has agreed to buy the corporate trust businesses of U.S. Bancorp's Oregon and Washington subsidiaries. Terms of the transaction were not disclosed.
Trust services, including corporate trust, are a core business for First Bank, based in Minneapolis. First Bank chairman and chief executive John F. Grundhofer described the U.S. Bancorp purchase as a move to strengthen the company's position as a corporate trust provider on the West Coast and run more business through its existing infrastructure.
A Marginal Business
For its part, Portland, Ore.-based U.S. Bancorp described corporate trust as a marginal business. "It's a very small part of our trust area," a spokeswoman said, noting that the company would continue to offer personal trust and employee benefit services.
Corporate trustees serve as paying agents and provide escrow and administrative services to issuers of corporate, municipal, and other bonds. Trustees are responsible for ensuring the terms of bond indentures are fulfilled.
As bond issues have become more complex, so has administering them. Liability claims against trustees have increased, and profit margins have shrunk. The result has been consolidation of corporate trust providers, with large operators absorbing smaller and less efficient competitors.
"In corporate trust, you have to have economies of scale," said Thomas O. Scherer, senior vice president of Municipal Bond Investors Assurance Corp., which insures municipal bonds.
U.S. Bancorp's Oregon and Washington corporate trust departments are relatively small, currently serving some 400 clients, mainly municipalities in the Northwest.
Among the Top Trustees
By contrast, First Bank says it ranks among the top 10 corporate trustees as measured my revenue. At yearend 1991, First Bank's trust unit administered more than 8,000 debt issues with principal amounting to more than $55 billion.
In July, First Bank completed the purchase of the California corporate trust business of Bankers Trust Co., adding 1,300 additional bond trusteeships representing $24 billion in principal.
First Bank and Bankers Trust's California corporate trust operations together produced more than $43 million in revenues in 1991, a First Bank spokeswoman said. U.S. Bancorp's corporate trust revenues amounted to $1.75 million, she said.
