Executives at private banks and wealth management units say the opportunities for mergers and acquisitions during this period of market weakness give them a way to revitalize their businesses despite the markets' woes.
"Private banks have to get broader. We have to expand, and the best way to do that is by acquiring," said one executive at a large private bank. This manager, who did not wish to be named, said his bank is closing one deal and in talks for two others as part of its growth strategy.
"We are acquiring for two reasons - to expand our customer base and to expand the products our customer base has" access to, the executive said. "And in this market you can't beat the prices."
More private banks are considering M&A as a means to enhance their assets under management. Last week, Wells Fargo & Co., which manages $38 billion of high-net-worth assets, signed a definitive agreement to buy Nelson Capital Management Inc., a privately held, Palo Alto, Calif.-based investment advisory firm. The deal, expected to close this quarter, came eight days after Wells had bought the privately held FAS Holdings Inc. of San Diego.
Jennifer Thompson, an analyst at Putnam Lovell NBF who covers Wells Fargo, said these acquisitions could be just the tip of the iceberg as the San Francisco banking company continues a strategy of buying investment units while the price is right.
"Wells' acquisition strategy has always focused on improving distribution when the time is right," she said. "This goes along with that strategy and with their focus on high-net-worth clients."
(Wells launched a new wealth management group Wednesday to focus on meeting the investment management, trust, and private banking needs of high-net-worth families. Lance Fox, who had been the managing director of private banking, was named an executive vice president and managing director of the new group.)
Eric Hayes, the head of State Street Global Advisors' private asset management division, said that though his unit of the Boston banking company State Street Corp. focuses on organic growth it is always examining potential acquisitions. Last February, it bought a 75% stake in Bel Air Investments, a Los Angeles investment manager for ultrawealthy people.
"I certainly think that there are good opportunities in the marketplace right now," Mr. Hayes said. "Valuations are at really reasonable levels, and that makes many firms look even more appealing."
Geoffrey Bobroff, a Providence, R.I., consultant, said some large banks and wealth management companies use cash to buy smaller and midsize firms that lack a large enough asset base to weather the current tough markets.
"Many small firms may have been established with grander expectations and more senior staff than they could handle in a difficult market," he said. "Some firms, in the latter years of the bubble, took on new products and personnel that put them in a position where they have to look to sell now."
Small asset managers are not in a "fire sale mode," Mr. Bobroff said. Many are just looking to get more customers. "If I am a small investment adviser in a small community, I have to compete with many players. In a difficult market, it is easier to join an organization, like a bank, with many customers and show the bank how to reach customers and build a deeper relationship," he said.
A survey released Tuesday by PricewaterhouseCoopers Financial Services said that, despite slower growth and shrinking profit margins, more than half the 29 wealth management firms contacted in the survey were planning or executing mergers.
"Our view shows that the real drive for institutions is to get greater wallet share with customers and the best way to do that is to provide more products and services," said Rob Gould, the global leader of wealth management at PricewaterhouseCoopers Consulting. "There are opportunities there in this market. This is the way to grow."
Mr. Gould said private banks and wealth managers are optimistic despite the markets' volatility. His firm's 2002 North American Private Banking/Wealth Management Survey predicts only a modest 10% annual growth rate in these companies' assets under management by 2004. The 2000 survey had predicted 12% to 15% growth this year, but analysts say the industry will fall considerably short of this.
"We will get back on track," Mr. Gould said. "While near term growth is tough, we will get higher in the next three to five years. I think private banks and wealth managers are thinking long-term."
But not all banking companies are looking to acquisitions for growth in their private banks and wealth management units.
Raj Madan, the director of marketing in Wachovia Corp.'s wealth management unit, said that mergers and acquisitions are a "low priority" for the company right now.
"We understand the bear market," he said. "It is a market where it is an asset to have a name brand that is highly trusted and approachable. We can offer everything, and that gives us a competitive advantage."
In search of growth, Wachovia started a program in April, called the Wealth Client Partnership, to look for cross-selling opportunities within the bank. The program assembled executives in each market from Wachovia's general bank and the wealth management, capital management, and corporate and investment banking groups to exchange leads to the wealthy clients each group has. The program generated 100 "warm leads" within its first three months.
Lyle Logan, the head of national marketing and sales at Northern Trust Corp., said his company is also emphasizing cross-selling rather than acquisitions as its best means to growth in the private bank.
"Bigger is not necessarily better," Mr. Logan said. "One of the challenges this industry faces is that people are just growing rather than looking for the right focus to bring to this market. If firms want to succeed they have to make sure that their focus is on the client, not on growing for the sake of growth."
