BlackRock Inc. says it believes it has an opportunity this year to develop assets by managing banks' balance sheets through its array of fixed-income products.
In the new service the New York money manager, a majority-owned affiliate of PNC Financial Services Group Inc., said it will use mortgage-backed, asset-backed, and federal agency securities, as well as corporate and municipal bonds to manage banks' balance sheets.
BlackRock has sold this service to insurance companies for years, but Michael Huebsch, a managing director at the company, said he sees an expansion opportunity in offering a similar service to banks.
"We have a lot of experience in terms of working with banks and insurance companies," he said, "and this year we believe there will be a lot of demand from commercial banks in the United States. We are keen to that. We want to provide them with services."
Mr. Huebsch said that banks have only just begun to feel comfortable about outsourcing management of the assets held in their investment portfolios. BlackRock has been managing mutual funds and other assets for banks' customers for years, he said, but this is the first opportunity it has seen to manage the banks' own assets.
BlackRock says it manages mutual funds and pension funds for bank clients, and some balance sheet assets, totaling $35 billion.
It has managed balance sheet assets for insurance companies for 10 years. For instance, it managed $46.14 billion for insurers at Dec. 31, 2002, up 51% from the year earlier, according to data from Insurance Finance and Investment magazine. The PNC affiliate is second only to Deutsche Asset Management in managing insurers' balance sheet assets. The Deutsche Bank unit managed $86.64 billion of U.S. insurers' assets at the end of 2002.
Mr. Huebsch said BlackRock believes demand from banks for help in managing balance sheet assets is increasing.
But analysts said that BlackRock's link to PNC, a banking company, creates a difficulty in finding banks willing to work with the money manager.
"It is one thing to hire an asset manager to provide a specific product; it is another thing to allow a competitor to manage your assets," said Kevin Daniels, an analyst in Boston. "Banks are careful with their customers' assets and even more careful with their own assets. You have to be careful about allowing the fox into the henhouse."
Mr. Huebsch said BlackRock's relationship with PNC has never deterred it from gaining bank customers. He said BlackRock hopes to attract small to midsize banks as customers for on-balance-sheet asset management and midsize and large banks as advisory services clients.
"Insurance companies are becoming more and more comfortable outsourcing their asset management to us," he said, "and we are seeing emerging interest from banks of all sizes."
In January BlackRock hired former Treasury under secretary Peter R. Fisher to be a managing director and member of its management committee. Mr. Huebsch said Mr. Fisher's background in risk management has been instrumental in developing this new line of bank business.
BlackRock has also created a task force of 20 people to develop distribution of this service to banks, Mr. Huebsch said.
"Bank executives want customers to come to them for advice," Mr. Daniels said, "but they want to believe they don't need an adviser because they can answer questions on their own." Mr. Huebsch said challenges are to be expected "but I certainly think there is a lot of receptiveness about partnering with us."
