A look at UMB's decision to sever ties with its funds business
By selling its struggling investment management business, UMB Financial in Kansas City, Mo., can allocate more time — and money — to its banking operations.
The $21 billion-asset company agreed Thursday to sell Scout Investments to a Raymond James unit for $172.5 million in cash.
The move comes eight years after UMB formed Scout from what had been an in-house operation. The business, which has about $27 billion under management, had suffered from sharp declines in fees in recent years.
Scout’s income plunged 90% last year compared with 2015, to $1.6 million. The business lost $1.5 million in the fourth quarter.
For UMB, the sale allows it to reinvest in its more profitable banking business, possibly through acquisitions. But it wasn’t an easy decision for Mariner Kemper, UMB’s chairman and CEO, which explains why UMB endured years of pain before cutting the cord.
“It was definitely emotional for me, personally,” Kemper said, adding the Scout had once been a “meaningful contributor” to UMB’s bottom line. “As somebody who loves this place, I’m emotionally tied to the deal, to the people and the business. That’s probably why we took our time to think about it.”
UMB also wanted to “find the right partner that would be the best platform for Scout’s success,” Kemper added.
In the end, it came down to choosing between “doubling down” and allocating more capital to Scout, or selling it to someone else.
“That was the strategic decision,” Kemper said.
With the course set, the sale process unfolded smoothly. UMB contacted a number of institutional money managers “that we had respect for” and let them bid for Scout, Kemper said, adding that “there was a lot of interest.”
Under the terms of the deal, which is to close by the end of the year, UMB would sell Scout to Carillon Tower Advisors. The price is subject to adjustment based on revenue and client retention. When the deal closes, Carillon should have more than $60 billion in assets under management.
“The addition of these unique investment cultures and well-recognized brands to our multi-boutique model is a natural extension of our long-term growth strategy,” Cooper Abbot, Carillon’s chairman, said in a press release.
To ensure a smooth transition, UMB will pay Andrew Iseman, Scout’s CEO, a $622,500 bonus to keep him on the job through the closing.
The sale should largely go unnoticed by UMB retail base because the overwhelming majority of Scout’s clients were outside the bank, Kemper said.
“Our customer base will never know it happened,” Kemper said.
During a brief conference call, Kemper and Ram Shankar, UMB’s chief financial officer, emphasized that Scout’s sale would not change UMB’s longstanding emphasis on noninterest income. Fee income generated by UMB’s health savings accounts, fund services and institutional banking business lines still generate about 44% of total revenue, Shankar said.
UMB could use some of the capital it receives from selling Scout to invest in its remaining fee-generating businesses. However, much of the new capital could go directly to funding loans.
“Our loan growth alone is an area that could sop up some of that capital pretty quickly,” Kemper said. “Looking back, we’ve had consistent, outsized loan growth, so we hope to continue to deliver on that.”