Late last year the Maryland Bankers Association was looking into ways to offer its community-bank members reasonably priced brokerage services that they in turn could offer to their customers.
Then, when visiting with colleagues at the Virginia Bankers Association, John Cavanaugh, the Maryland group’s vice president of member services, learned that its neighboring trade group had solved a similar problem two years earlier by creating an independent, member-owned broker-dealer, BI Investments LLC.
Mr. Cavanaugh said he could have followed the Virginia model, but that probably would have involved months of raising money, hiring brokers, and seeking approval from the National Association of Securities Dealers.
Instead, he inquired about having BI Investments offer its services to Maryland community banks.
“It just seemed like a natural fit, and we did not have to reinvent the wheel,” Mr. Cavanaugh said.
BI Investments began offering broker-dealer services to Maryland banks last week and met this week with about two dozen banks to explain the arrangement. The Richmond outfit was established in mid-2003 and is now owned by 33 Virginia banks.
James Eads, BI Investments’ managing director, said it was created specifically for Virginia banks and that it had not planned to offer its services to other states’ banks. But when Mr. Cavanaugh approached him about working with Maryland group’s members, he was more than happy to accommodate, he said.
“It’s all about economies of scale and having more banks participate,” Mr. Eads said.
Mr. Cavanaugh said he expects that 10 to 15 community banks in Maryland will sign up over the next year and that others will enroll once contracts with other third-party vendors expire.
Like the Virginia Bankers Association, the Maryland group’s main role will be to promote BI Investments and its services to the trade group’s members.
Banks that want to use BI Investments’ brokerage services must buy an equity stake in it, the amount of the stake varying by the bank’s asset size. The company would then put together a package of brokerage options and hire employees to work in branches.
The banks’ ownership stake provides them with a portion of BI Investments’ income. BI Investments estimates that its annual income would be $3.5 million in three years if 15 Maryland banks invest in it. He would not disclose its 2004 income.
The only other broker-dealer owned by a consortium of banks is Infinex, created in 1993 by the Connecticut Bankers Association. Its services are offered through banking trade groups in Connecticut, Massachusetts, Pennsylvania, New Jersey, Ohio, Florida, and Rhode Island.
Mr. Eads said BI Investments would be willing to work with trade groups in other states, most likely ones contiguous to Virginia. But it would not work with banks in those states unless the trade groups were on board, he said.
“We don’t solicit banks in other states, but we may well coordinate with other state trade groups, if they are interested,” Mr. Eads said.
