Pressure on profit margins, due to increased competition and higher costs for both technology and experienced personnel, will force consolidation in the trust industry. This consolidation appears to be independent of the consolidation that will continue in the banking industry as a whole. The increasing costs of automation required to support the services demanded by the market will be a major factor in these consolidations. In the midst of this contraction, however, we see certain expansion trends being implemented by several bank trust departments. There will be two principal expansion strategies: international and national.

International expansion is already taking place, and has been for some time. This business is largely the domain of the money-center banks. Some of this activity may very well consolidate. In other words, one or two of the money-center banks may decide to exit the business.

Those deciding to remain in the market will find the systems and communications technology investments so significant that they will look to increase their business through acquisition and the creation of new services. Much of the global business now is custody and clearing-related activity. The key banks in this market will look to investment management and risk management as a way to expand both their product lines and profit margins.

The domestic market will continue to have community bank participants, but we see the larger regionals and superregionals expanding trust services on a national basis. Some product lines, most notably corporate trust and 401(k) plans, will consolidate. We will see a national expansion from fewer, but larger, trust departments in these services. This will prove to be necessary to justify the technology investments required to be competitive in the 401(k) marketplace and the thinner margins in corporate trust.

Another form of national expansion will be based on a superior reputation for service delivery. Some of the major trust banks, for example, will likely move toward a national franchise for trust and private banking. Many banks have opened special-purpose branches across the country, but additional expansion will be possible without a physical presence.

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