Bank of New York Mellon Corp. plans to expand its wealth management business westward, using proceeds from last month's deal to sell Mellon 1st Business Bank in Los Angeles to U.S. Bancorp of Minneapolis.
The strategy is a familiar one: acquire in affluent markets where it lacks a presence and add business organically where it does have offices.
David Holst, an executive director of the BNY Mellon Wealth Management division and the head of BNY Mellon West, said the company aims to buy wealth management firms in Texas, Arizona, and San Diego during the next three to five years.
"I would be very surprised and disappointed if we are not in all of those markets in the next three to five years," he said in an interview from his Los Angeles office this week. "It would really be unbelievable if we can't make it happen."
Texas is the first priority, and Mr. Holst predicted Bank of New York Mellon would buy in the state before yearend.
However, competition for boutique wealth managers is fierce as more financial services companies, including large banks like Wachovia Corp., seek ways to expand in the West. And other banks have used similar acquisition strategies to enter new regions.
For example, Boston Private Financial Holdings' growth strategy has been to establish regional hubs by acquiring a wealth manager and a private bank. It has enabled Boston Private to extend its reach through New England and into New York, Florida, the Pacific Northwest, and California. In December, it announced it would buy the Philadelphia wealth manager Davidson Capital Management to enter that market.
Mr. Holst said that Bank of New York Mellon has only been on the West Coast for about 15 years "so our footprint in the West is not as extensive as it is in the East, since we are still a relatively newer company here. We think that the West is really going to be our focus for growth over the next few years because our footprint is so much smaller here."
Bank of New York Mellon, which considers its "western operations" to be any business based west of the Mississippi River, has 18 business lines with 1,100 employees in western states. "In areas where we have a presence, we want to grow our assets under management by adding … employees and locations that are contiguous with our existing locations," he said.
Bank of New York Mellon, which has $23 trillion of assets under custody, including more than $1.1 trillion under management, has wealth management offices in five regions in the West — Denver; Las Vegas; Seattle; San Francisco; and, in Southern California, Los Angeles, Century City, and Newport Beach.
"Specific to wealth management, our five regions are relatively smaller, compared to the East Coast," Mr. Holst said. "We really just have to increase the number of portfolio managers, trust officers, and business development officers in these offices, but we have to add the right people."
Mr. Holst said the company wants to add wealth management offices because "clearly we have a lot of holes to fill" in the West.
The company has had "dozens of conversations" with an array of investment managers and wealth management companies in Texas, Arizona, and San Diego, he said, but nothing has jelled yet.
"Our belief and experience has been that it makes more sense to hire people in markets where we are established and acquire companies that have established reputations in order to enter a new market," Mr. Holst said.
Bank of New York Mellon has made four acquisitions in the West during the past four years to establish itself regionally in each of its western markets, except Las Vegas, but only about 20% of the company's wealth management employees are working in the West.
"Acquisition works because, when you have a boutique investment manager, they tend to have very loyal clients and a strong reputation but lack that full range of asset classes," Mr. Holst said. "This makes an acquisition a strategy that can be beneficial for everyone, including the customers. … We don't want to replace or displace a relationship. We want to find ways to offer a wider range of products and services."
Stanhope Kelly, the president of Wachovia's wealth management division, said in an October interview that his company wants to acquire in Texas, Arizona, and California to develop market share as its parent expands along the West Coast and through the Southwest.
Mr. Holst admitted that making an acquisition to expand in the West has been, and will continue to be, very difficult for any banking company, including Bank of New York Mellon, considering the stiff competition in the region.
"Wanting to be in Texas isn't a strategy that just occurred to us last week or last year," Mr. Holst said. "We have wanted to be there for three or four years, and the same goes for Arizona and California. We don't want to force something that doesn't work for us or for the company we are acquiring."
Bank of New York Mellon wants to take the same approach to organic expansion. Mr. Holst said the company could hire a dozen people in each office immediately but wants to find the right people. "That will make our growth effective, not just growth for growth's sake," he said.
