Trust income and asset growth at banks slowed last year, as rough markets and rising competition from nonbanks took a bite out of the traditionally lucrative business.

Trust assets managed by the top 100 trust banks grew 4.97%, to $2.322 trillion at yearend 1994, according to an American Banker survey. That increase was markedly slower than in 1993, when managed assets blossomed at a 13.39% pace.

These banks posted an aggregate 11.08% lift in trust income, to $13.6 billion. These gains lagged 1993's growth rate of 14.8%.

While bankers acknowledged they face growing competition for trust assets, they remained upbeat about the business.

"There is plenty for everyone," said Michael C. Baker, president and chief executive officer of Barnett Banks Trust Co., Jacksonville, Fla. "Although it may be a slow growth business, it is a very steady one."

Indeed, the percentage of operating income derived from trust activities rose to 5.41% in 1994, from 5.07% the previous year.

The survey found J.P. Morgan & Co. remained the leader in trust income last year, pulling in over $1 billion. And Bankers Trust kept its leading role in the managed assets arena, with $184.7 billion.

Acquisitions also helped several banks push ahead in the ranks.

In the biggest jump, Keycorp shot up into the top 20 in both trust income and managed assets, due to its 1993 acquisition of Society Corp. And Mellon Bank Corp. moved into second place in the income ranking, thanks to its August 1994 acquisition of Dreyfus Corp.

Still, last year was not a groundbreaking one for the industry as a whole. Bankers and consultants alike are blaming the lukewarm results on the poor market environment last year, particularly on the bond market, whose losses affected whole lines of the trust business.

But they are also acknowledging the strong foothold nonbanks - mutual fund companies, brokerage houses, and even attorneys - have staked out in trust territory.

"The nonbanks are clearly moving in," said Robert Tetenbaum, executive vice president of First Manhattan Consulting Group.

PaineWebber, for example, has had "tremendous" growth in trust assets, according to John W. Emery, a manger of personal trust at the financial services company in Weehawken, N.J.

Mr. Emery, whose company manages about $41 billion mostly in personal trust assets, said the growth has been in "the double digits" for the last few years.

As nonbanks build relationships with one-time bank customers, "those customers are not seeing the need to move back to a traditional trust relationship," said Amy J. Errett, chairman of the Spectrem Group, San Francisco.

But Mr. Emery said his firm does not necessarily look at the trust business as a competitive drive, but regards it as an "opportunity for all of us to do more trust business."

And bankers agree the question is not necessarily one of competition as much as a continuous need for self-improvement.

Barnett's Mr. Baker said asset management and fiduciary services will present a tremendous growth opportunity for all kinds of providers, given the statistics that point to a growing aging population, and the impending transfer of trillions of dollars in wealth over the next 25 years.

"The future is very bright," said Mr. Baker. "But the question is whether one is positioned to provide the kinds of services to stay up to date."

Some banks are choosing to exit parts of the technology-heavy side of the trust business, admitting that they cannot compete on all fronts.

Both NationsBank and Bank of America, for example, have left the corporate trust and parts of the institutional trust business, respectively. And Bank of New York has decided to grow bigger in the same businesses, with multiple acquisitions in the global custody, corporate trust, and other securities processing lines of business.

But Ms. Errett thinks banks still have a long way to go. She advises clients to invest in technology, come up with "turnkey" products, and to teach their staffs better marketing skills.

"Those are the things that are standing between a bank deciding to turn on the engines again and be back in the race, or not," she said.

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