The private banking unit of Boston Private Financial Holdings Inc. says it plans to move beyond the city with a couple of acquisitions in New England this year.
Mark D. Thompson, Boston Private Bank and Trust Co.’s chief executive officer, said in an interview that after spending three years developing its presence in and around Boston the bank is examining opportunities in southern New Hampshire, Newport, R.I., Cape Cod, and Massachusetts west of the Boston area.
The bank would look to make one or two deals a year in order to grow “slowly and deliberately” in the region, Mr. Thompson said.
“There is a strong likelihood we will look to make an acquisition in order to grow,” he said. “It is difficult to go up to a territory or to a market we aren’t familiar with and just to open a de novo office. It just makes sense to acquire a small institution or a group of key people to help us hit the ground running.”
Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I., said this growth strategy is sound on its face but often is difficult to execute.
“Culturally, it is hard to grow this way,” Mr. Bobroff said. “You see many acquisitions where banks buy family offices in a community that culturally just don’t work out. Ideally, it should work. But it is hard to grow a business organically from outside of your footprint.”
This approach to acquisitions has been adapted from the parent company’s national growth strategy. Since being founded in 1987, Boston Private Financial Holdings has built up operations in Boston, Northern California, and Seattle.
Timothy L. Vaill, the parent company’s chairman and chief executive officer, told investors at a conference in September that he expected to make more deals. The parent has bought eight companies and taken big stakes in three others since 1995, mostly to increase wealth management revenue and to become a national player.
In October, the holding company bought 81% of KLS Professional Advisors Group Inc., a New York wealth manager that handles $2.7 billion of client assets.
The parent company had $16.7 billion under advisement at Sept. 30. The bank unit’s assets under management grew from $1.6 billion at yearend 2000 to about $2 billion today, 25% growth in four years.
The Boston subsidiary’s growth strategy is the same. Both companies enter a market by making a purchase, then growing organically.
“The further you reach from your home base, the harder it is to establish de novo offices,” Mr. Thompson said. “We have to look to strategic acquisitions of money management firms or private banking institutions to help further our expansion.”
Mr. Thompson said Boston Private wants to replicate the success it has had in the Boston area. In the past year and a half, it has opened offices in Boston’s Seaport District and in the western suburbs of Wellesley and Newton Center. It also opened a full-service ATM center in Newton Lower Falls and has signed a lease for a site in Hingham on the shore south of Boston.
Mr. Thompson said the bank is also negotiating to open an office in Lexington and another ATM site in Waltham. He said it is also looking for an office in the shore region north of Boston within six months.
“We want to start looking now outside of Massachusetts,” he said. “We have decided we want to concentrate on locations within a one-hour radius of Boston first. We want to complete that and at the same time look for ways to further expand in New England.”
Mr. Thompson said that as a midsize private bank Boston Private is uniquely positioned to develop market share with high-net-worth New England customers. The bank is not as large as competitors in the region like Bank of America Corp., he said, but can offer a wider variety of products and services than a community bank.
“We can’t compete head on with an organization with the scale that Bank of America has, but our size gives us a tremendous advantage in private banking and wealth management,” Mr. Thompson said. “We have the critical mass and the expertise to compete with large institutions and we can outperform smaller banks.”
Mr. Thompson said Boston Private’s positioning as a Boston-based institution gives it a key advantage over other private banks in the region.
“The hometown bank in Boston is dying,” he said. “Since 1994, nine of the 10 top private banks in Boston have been acquired. If you look at the top 25 in New England, 20 now have the Bank of America flag. This time of consolidation has created opportunities for us. It has created an opportunity for us to get strong executives, and it creates an opportunity to generate new customers.”
In the past four to five years Boston Private has been able to hire key executives from several Boston banks that were acquired, Mr. Thompson said. “It is kind of a common theme,” he said. “When a bank gets acquired it is just no longer the same institution, and there are better opportunities for someone elsewhere.”
Mr. Bobroff, the consultant, said that if Boston Private can marshal the right products, both proprietary and nonproprietary, it can succeed in its footprint.
“A local firm has much more control over its customers than the likes of a firm the size of Bank of America,” he said, “because the seat of power for Bank of America is so far away. A local firm has a presence in the community.”
Mr. Bobroff said most midsize and smaller “bedroom banks” have failed because they are not properly equipped with products and services. “It is hard for [a] midsize bank to have all things that upper echelon, high-net-worth clients are seeking,” he said.
Mr. Thompson said Boston Private has been able to grow consistently. Balance sheet revenue is up 20% in the past year, he said, and fee income has increased 15%.
The bank has increased its marketing budget 30% annually for the two years, he said, and will increase it 30% again this year, but it will continue to generate most new accounts from existing customers through cross-selling and referrals.
