Banks' drive to capitalize on customer demand for investment products took a new turn Thursday as First American Corp. announced a deal to buy a leading provider of brokerage services to banks.
The acquisition of Invest Financial Corp. would make First American - a $9.7 billion-asset company based in Nashville - the first bank to buy a firm that focuses on helping other banks market investments. The deal is subject to regulatory approval.
More than 3,000 banks now sell mutual funds, annuities, and other investments, and Invest operates sales programs for fully one-third of them. Such companies, known as third-party marketers, provide banks with licensed brokers, a menu of investment products, and the know-how to identify likely customers.
In a telephone interview Wednesday, First American chairman Dennis C. Bottorff said the Invest acquisition was part of his company's strategy of reaping fee income through investments in financial services businesses whose growth is outpacing banking businesses. Brokerage services fit that description, he said.
"There are still 7,000 community banks that want to get into this, but haven't," Mr. Bottorff said.
First American's acquisition of Invest from Zurich Kemper Investments had been rumored for weeks, but the $26 million deal contained one big surprise. Concurrent with its sale, Invest merged with a major rival, Investment Centers of America, Bismarck, N.D. Each company will continue operating under its own name.
At the time of the merger, Invest managed 800 investment centers for 240 financial institutions nationwide, generating gross sales of $1.7 billion in 1995. Investment Centers of America, with 230 locations, mostly in community banks west of the Mississippi, had 1995 sales of $700 million. Together, the companies have more than 1,700 representatives licensed to sell investments or insurance products.
Banking industry observers said First American's deal for Invest was an intriguing, though offbeat, move.
In recent years, banks have concentrated on building up their own investment products businesses. Only a few have made acquisitions in the field, and those - including First Union Corp., Mellon Bank Corp., and Chase Manhattan Corp. - have stuck to purchases of money management and mutual fund companies.
"We haven't even considered buying a third-party marketing firm," said Anthony Psilos, president of the brokerage arm of New Orleans-based Hibernia Corp.
But, he added, the move may prove fruitful, because community banks like those that make up Invest's core clientele lack the resources to build up their own brokerage programs.
Carole Berger, a Salomon Brothers analyst, said the deal was too small to have much impact on First American's bottom line. But she said it fits in with the company's search for unusual sources of revenue. For instance, she said, First American recently acquired a company that processes health care claims.
Ms. Berger said it's far from clear whether First American will be able to make much of the Invest acquisition, given the wave of mergers that is sweeping the banking industry. "You really have to be convinced that the growth you can create in the smaller banks is sufficiently high enough to compensate what you lose to consolidation."
Under the new ownership, Invest will be the parent company of Investment Centers of America. Merlin R. Gackle, Investment's chairman, will retain that role. Thomas E. Gunderson Sr., will remain president and chief executive of Investment Centers, and will add the title of vice chairman of Invest.