Boston Private Financial Holdings LLC's top executive said that when it realized it already had the perfect private-banking component for its New York-area expansion in Florida, it also may have found a strategy to help itself expand more quickly across the country.
Timothy L. Vaill, Boston Private's chairman and chief executive, said using the federal thrift charter of its Gibraltar Private Bank and Trust Co. in Coral Gables, Fla., to open a New York branch is a model that his company could replicate.
"We could use this in other markets, but the question remains whether that is the best way for us to expand," Mr. Vaill said. "In Philadelphia or Atlanta, there might be a bank with an established brand in the market that might be the preferred way for us to go. But now that this has worked, we have a much more open mind."
Boston Private can use Gibraltar's charter to open private banks in other markets it is considering entering, he said, but the company still would prefer to grow through strategic acquisitions.
"Market valuations are going down, and pricing is attractive, but we don't want to buy ourselves a problem," Mr. Vaill said. "We don't want to start a bank with a lot of baggage. We'd rather go de novo."
Boston Private had $37.2 billion of assets under management as of Sept. 30. If it grew at a compound annual rate of 50%, it would double those assets in five years, he said. "It could happen if we continue to follow the math."
Analysts said Gibraltar's charter could help Boston Private grow more quickly, but at the expense of profitability.
"If you buy a bank, you are going to be profitable with it from day one, but if you are going to open a de novo branch, it will take more time for it generate revenue," said Burton Greenwald, a Philadelphia analyst with B.J. Greenwald Associates.
Mr. Vaill admitted in an interview last month that it could take two to three years for Gibraltar's New York branch, which opened in October, to become profitable. Nevertheless, Boston Private is "willing to take the hit in order to establish a private banking presence in the New York metropolitan market," he said. "From one perspective, this might appear expensive, but it may end up costing less in the long run."
For the past 13 years Boston Private's growth strategy has been to establish regional hubs by acquiring a wealth manager and a private bank. That strategy enabled it to extend its reach into New England, New York, Florida, the Pacific Northwest, and California. Last month it announced it was buying the Philadelphia wealth manager Davidson Capital Management to enter that market.
Mr. Vaill said Boston Private identified the New York market five years ago as a "high target area" and planned to use its acquisition strategy to enter it. However, after buying two New York wealth management firms in 2004 — Dalton Greiner, Hartman, Maher & Co. LLC and KLS Professional Advisors Group LLC — Boston Private could not find a private bank to buy.
Typically it likes to buy a private bank with $500 million to $1 billion of banking assets, but it will go lower if the right target is available, he said. "We really like to find an existing company that has an established client base, leadership team, and reputation, but [in New York] we just weren't able to find one that was the right size after searching for three years. Either the company was too big or not quite ready."
In October 2005, as Boston Private struggled to find a partner in New York, it bought Gibraltar. Part of the private bank's appeal was its federal charter, which Boston Private could use to "branch anywhere with possibly the least amount of hassle," Mr. Vaill said. "We concluded when we announced the deal that this might be the better solution for the New York metro area."
Janit Greenwood, a senior managing director and market manager of Gibraltar's New York office, said she has assembled a team of seven private bankers.
"We are capitalizing on the climate of M&A activity and attracting customers that are underserved by other banks and bankers that are finding it hard to wait while their company is being acquired," she said.
But the New York growth has had its hiccups. In the third quarter Boston Private was forced to take a $10 million noncash charge to reduce goodwill related to Dalton Greiner, whose assets under management have declined 35% since 2004, to $2 billion as of March 31.
Analysts attributed the decline to Steve Bruno, one of Dalton Greiner's co-presidents, who managed its technology funds before leaving the firm in October 2006. According to analysts, his aggressive investment strategy led to poor performance that drove some of the outflows.
Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets, said that Dalton Greiner's assets began to steady in May, and that Boston Private remains committed to expanding in New York.
Mr. Vaill said the decision to open a Gibraltar branch is a good indication of the company's commitment to the market.
Boston Private could use Gibraltar's charter to develop private-banking capabilities in other markets, he said. "We are much more willing to be creative and flexible now that we know we can successfully open a Gibraltar branch in a region."
But the company is not in a rush to acquire or open another Gibraltar office, Mr. Vaill said.
"We want to have the people first and the right team in place. We are willing to be patient. We don't want to buy another bank's bad underwriting," he said. "The good news about our model is it is nonintegrated. Every piston is separated. We could sit here and never do another deal, and still we would generate strong organic growth and lots of profits for our shareholders. If the conditions are unfavorable, we'll wait."
However, Mr. Vaill said the company could make a move. "There has been a lot of consolidation — in the last 12 months there has been some terrific disruption, and really good people are emerging," he said. "We really think there are a lot of opportunities in a disruptive market."
