Banks have much to gain from buying asset management firms but have lagged as successful acquirers, an investment banker said.
"Banks haven't been doing a good enough job at making the purchases and then persuading people to buy their services," said Donald Putnam, managing director and chief executive at Putnam, Lovell, De Guardiola & Thornton.
Management at financial institutions "is better at moaning about disintermediation than addressing it," Mr. Putnam said in an interview last week. He spoke during a conference sponsored by his firm that drew more than 100 industry executives and investors, underscoring brisk interest in dealmaking among asset management firms.
In an interview after his prepared comments, Mr. Putnam said banks have lagged at making the most out of their acquisitions. "The only way to succeed is to acquire an entity that is successful and let its culture conquer the bank's culture," Mr. Putnam said. "We have not been seeing that in most cases."
Mr. Putnam offered a report card for how he feels banks have been doing with their money management activities.
He gave low marks to Citigroup, saying the banking company's capabilities in money management "are all out of proportion with its leading market share in many areas." Citi did not return calls seeking comment Thursday, but executives at the company have said that it is striving to develop a "world-class asset management and mutual fund business."
Mellon Bank Corp. has done a good job with its acquisition of Dreyfus Corp., Mr. Putnam said. "The deal was done at a significant premium that was fully justified over a three-year horizon."
Mr. Putnam also gave high marks to First Union Corp.'s purchases, saying, "First Union has excellent leadership in the asset management area."
Consolidation in the investment management industry will continue as banks seek to buy their way into the business instead of building operations from scratch, participants in the conference said.
The stakes are high, with banks easily finding themselves having to spend more than $1 billion for large asset managers, participants said. "Acquisition pricing will remain strong," Mr. Putnam said.
Banking companies should look to firms with succession issues, Mr. Putnam said. "Aging managers with significant ownership in their respective companies are being forced to address estate planning."
Banks should also look for companies that are well rounded in terms of product offerings and can sustain earnings growth, participants said. "To win in distribution you must offer the best menu of products," Mr. Putnam said.
Once asset management firms are acquired, it is imperative that they be allowed to operate independently, conference participants said.
"The key is autonomy," said Peter Voss, chairman of Nvest LP, a Boston investment management firm. Management of the firms "should be through collaboration, not consolidation. The relationship has to be mutually beneficial."
This approach "offers strong incentive for continued growth," Mr. Voss said.
Banks will not be successful if they look to these firms simply as "fee income gatherers," said Mario J. Gabelli, chairman of Gabelli Asset Management. "They must understand the importance of the relationships these firms have with their clients."