Banking companies emerged as the leading buyers of investment managers last year and are expected to continue as active acquirers this year.
Out of 71 acquisitions of U.S. investment firms announced in 1997, commercial banks were responsible for 23, according to a study by Investment Counseling Inc., a West Conshohocken, Pa., research and consulting firm.
That's more than any other category of financial services companies, Investment Counseling said.
The results are in sharp contrast to prior years, when banks hotly pursued asset managers only to be beaten out in the bidding by insurance companies, money management firms, investment banks, and brokerages. In 1996, banks did only four of 49 announced deals and 10 out of 65 the previous year.
Part of the problem for banks was that many investment managers did not want to sell them their firms for fear of irreconcilable differences in their cultures. An initial loss of clients and talent from Mellon Bank Corp. after its acquisitions of the Boston Co. in 1993 and Dreyfus Corp. in 1994 fed the impression that banks were not cut out to buy investment management firms.
But according to investment bankers and other observers, that stigma is fading away. Mellon's recent success in the investment management business has influenced industry opinion, they said.
In December, Founders Asset Management, a Denver mutual fund company with $7 billion under management, agreed to a $275 million acquisition by Mellon.
"Over time, banks have become more sophisticated as partners with these businesses. That's a positive development," said Peter L. Bain, principal of Berkshire Capital Corp., a New York-based investment banking firm.
Others said banks today are more likely to leave acquired firms alone, making them more similar to other buyers, including investment firms and insurance companies.
"Where banks have always wanted to buy everything and run it their way, they are now more willing to leave some equity for management to motivate them and leave them somewhat autonomous," said David D. Silvera, a co- author of the Investment Counseling study.
In 1997, most banks purchased smaller properties with an average of $5 billion of assets under management. Nevertheless, banks were equal to other buyers in a ranking of the top 10 acquisitions.
Topping the list was J.P. Morgan & Co.'s $900 million outlay for a 45% stake in American Century, which was managing $60 billion of assets when the deal was announced last summer.
The New York-based bank also bought a real estate adviser, O'Connor Group, which manages $4.1 billion of assets, and a private equity boutique, the former AT&T Investment Management Corp., which manages $3.8 billion.
Jeff Garrity, a J.P. Morgan managing director for asset management, said as clients' demands for 401(k) and other retirement plans accelerated, internal expansion was no longer a sufficient option for the bank.
"If the fastest way to gain that capability is through acquisition or investments, we're going to do it," he said. "We want to maintain and enhance our leadership position in global asset management."
J.P. Morgan, which manages $280 billion of assets, did not want to take over American Century outright. It simply wanted to access the company's strong retirement-plan record keeping and mutual-fund capabilities. "You really don't need to control it," Mr. Garrity said of American Century.
At the same time that banks raised their profile in the market, observers said categorizing buyers is becoming irrelevant because of convergence in the financial services industry.
"The big thing to take away from Citigroup is if you're a financial player, you can do anything you want," said Steven C. Pierson, a vice president of Putnam, Lovell, deGuardiola & Thornton, an investment bank in New York.
