PrivateBancorp Inc., a Chicago private bank fast approaching the $1 billion-asset mark, is shifting focus away from loans to wealth management and is looking to make two deals to make the transition work.
The bank's core clientele - professionals and small-business owners with net worth of $1 million or yearly income of $150,000 - falls well below the radar of most traditional private banks, which tend to focus on those with $1 million or more of investable assets.
Ralph B. Mandell, founder and chairman of PrivateBancorp, wants to build on that customer base by buying an asset management firm and a financial planning firm and by strengthening its relationship with the Chicago insurance broker Mesirow Financial Holdings Inc.
"Large banks have difficulty" focusing specifically on private banking, "and this is all we do," said Mr. Mandell, who did not specify when he expect to make these acquisitions. "They know there is no way they can listen to every customer the way we can."
Gary L. Svec, chief financial officer, said PrivateBancorp wants to be able to "bank customers through the cycle" - help with loans and mortgages when they are young and manage their assets as they get richer.
Mr. Mandell, who is also president and chief executive officer, says his target audience is "disenfranchised" in private banks' rush to the so-called mass affluent - those with investable assets of $1 million.
"These customers are still part of the top 2% to 3% of the wealthy in the U.S., but they aren't really wanted by traditional investment banks," he said.
Since its founding in February 1991, PrivateBancorp, which manages $875 million of assets, and has custody of $693 million of trust assets, has offered a full range of traditional private banking services: deposit products, jumbo mortgages, online banking and trusts.
Mr. Mandell said he would like to buy a Chicago asset manager, preferably one with $400 million to $1 billion of assets so that he can take his asset management in-house.
Following that up with a purchase of a financial planning firm would enable PrivateBancorp to provide the whole gamut of advisory services to its clients. But Mr. Mandell plans to continue outsourcing his clients' insurance needs to Mesirow.
After building a wealth management foundation, Mr. Mandell wants to expand in the Midwest - it has seven Chicago-area branches and one in St. Louis - and into the Sun Belt.
PrivateBancorp is not the first institution of its type to remake itself as a wealth manager. Boston Private Financial Holdings Inc. started out in 1987 by offering deposit products, cash management services, and loans and began offering asset management services in January 1993. Chairman/CEO Timothy L. Vaill said Boston Private now has $1 billion of deposits, loans and mortgages, and $6 billion of assets under management.
Chicago has large national banks whose operations include private banking, such as Harris Bank and Northern Trust, but there is a market in the area for boutique private banks, Mr. Vaill said.
"High-net-worth individuals want the company's focus to be on them, and that's something a large national bank cannot promise," he said.
Executives at Northern Trust Corp. and Harris, a Bank of Montreal subsidiary, concur that they do not have the same target market as PrivateBancorp in private banking. Northern Trust sets a $1 million minimum for investable assets, Harris $100,000.
Lyle Logan, head of national marketing and sales at Northern Trust, said Northern Trust would like to target customers with $150,000 in annual income but prefers wealthier people who have more assets to manage.
Joseph A. Stieven, an equity analyst with Stifel Nicolaus & Co., St. Louis, said focusing on the lower end but featuring high-end services makes Private Bancorp's strategy interesting. It's "not fooling itself into believing it is Northern Trust," he said.
PrivateBancorp does not pursue the typical private banking customer - someone with $1 million or more of investable assets - but is getting them. Clients are only required to maintain a minimum of $25,000 in a cash management account, but the average client keeps $1.5 million in that account, Mr. Mandell said.
He said it is conceivable that by June 2002 PrivateBancorp could have $2 billion of trust and other assets under management.
PrivateBancorp research has found there will be 300,000 millionaires in the Chicago area by 2003, and a bank only needs a small percentage of them to be profitable, Mr. Mandell said.
"We are in a great yard in the Midwest," he said. "There is room for Northern Trust to do well and there is room for PrivateBancorp to do well. We are targeting different clients."