Despite a strong stock market, growth of trust assets at the nation's banks slowed last year, offering fresh evidence that the industry is losing share to mutual fund companies, brokerage houses, and other competitors.
According to an American Banker survey, trust assets managed by the top 100 banking companies in the field grew by less than 5% to $2.9 trillion in 1996. The disappointing growth came in a year when the Dow Jones industrial average posted a robust 26% gain.
The results were dramatically affected by the sale of Wells Fargo & Co.'s $200 billion-asset institutional trust business at yearend 1995. The sale to Britain's Barclays PLC knocked Wells from its No. 1 berth to No. 18.
Had the sale not occurred, asset growth among the top 100 banking companies would have come in at 12.3% last year. Even that level of growth, however, would have been less than half of 1995's 24.8% rate.
Trust experts said the survey results demonstrate that although banks are able competitors in investment performance, they are laggards when it comes to marketing.
"Perceptions outlive reality," said David Hall, chairman of Financial Services Associates, a Niles, Mich.-based consulting firm. "The reality is banks have been competitive in investment performance."
Despite the slowdown in asset growth, banks continued to increase profits from fiduciary businesses-including corporate trust, shareholder servicing, and institutional trust-at a healthy pace.
The top 100 players saw an aggregate gain in gross trust income of 13.20% last year, up from the 9.17% lift posted in 1995. J.P. Morgan & Co. once again topped the income chart, pulling in close to $1.3 billion.
Sixth-ranked Bank of New York Corp. beat the industry norm handily, with trust income up 49%. The bank last year bought the corporate trust business of Riggs National Corp., as well as the corporate and municipal trust business of Wells Fargo.
"For the people who have above-average income, it's attributable to acquisitions in securities processing and new business," said a trust executive who requested anonymity. "That's what it boils down to."
For the slowdown in asset growth, trust bankers offered several explanations. One theory: Investments managed by bank trust departments remain heavily weighted toward the fixed-income markets, which posted much smaller gains than the equities markets.
The Lehman Brothers Aggregate Bond Index, for instance, was up 3.63% in 1996.
"People don't just have stocks that were up 25% last year," said Robert C. Elliott, senior executive vice president of Bessemer Trust Co. "They have bonds and cash in low double digits, and that's before the distribution of income and payment of taxes."
In addition, many trust banks lack large, proprietary index funds, which were among the most popular investments in 1996.
"This past year was the year of the index, and it may have been one of those most difficult years to sell anything else, because they haven't done as well," said Robert M. Tetenbaum, executive vice president of First Manhattan Consulting Corp.
The survey showed that many trust banking leaders rely on more than just investment management activities to fuel fiduciary income. No. 3-ranked State Street Corp., which saw its discretionary assets fall nearly 4% to $224 billion last year, logged an above-average 24% gain in income.
Ronald L. O'Kelley, the Boston-based bank's chief financial officer, said financial asset servicing-accounting, custody, daily pricing of mutual funds, portfolio administration, cash management, foreign exchange and securities lending-accounts for 72% of State Street's trust revenues. Investment management is responsible for 18%.
Competing in those servicing businesses is no easy task, he said.
"There's a huge technology investment required," Mr. O'Kelley said. "You have to spend a lot to stay in this business."