NationsBank Corp.'s exit from the institutional trust business has drained assets from its investment management unit.
The Charlotte, N.C.-based banking company had $120 billion of assets under management in November. Barnett Banks Inc., which NationsBank purchased in January, brought another $20 billion into the fold.
Now NationsBank is managing $100 billion of assets. The banking company attributes the drop to its departure last year from the related businesses of institutional trust and custody.
"We knew when we decided a year ago to exit the institutional trust and custody business that some of those clients would want to keep the administration and investment functions bundled," a spokeswoman said. "On balance, we are pleased with the outcome, because it's less than what we anticipated.
"We knew some of those assets would migrate, and probably a chunk of that occurred at yearend when those things are on a calendar," she added.
NationsBank last year sold both its institutional trust business and one that it acquired via Boatmen's Bancshares to Bankers Trust New York Corp. Some of the $133 billion of assets under administration were also under investment management with NationsBank.
Many of those investment accounts remain at TradeStreet Investment Associates Inc., the bank's lead money manager, NationsBank said. TradeStreet manages $20 billion of assets in separate accounts for institutional investors and $32 billion in proprietary mutual funds.
A portion of the assets in TradeStreet are also managed on behalf of private clients. NationsBank's private client assets increased to $70 billion today from $60 billion in November.
Despite related losses of investment accounts, NationsBank executives said the departure from the low-margin institutional trust business has other advantages. NationsBank decided to reallocate the expenses from custody to investment management, said Holly Deem, president of TradeStreet.
"If the account is looking for a bundled opportunity, we don't stand as good a chance," Ms. Deem said. "On the other hand, where an account is looking for investment management capability we've been very successful."
When bidding on NationsBank's institutional trust portfolio, Bankers Trust hoped that some of the custody clients with about $250 million to invest would also look to the New York bank for money management.
"That segment is unique: Those clients do tend to look for their provider to provide a broader array of products including investment management," said Timothy F. Keaney, a Bankers Trust managing director in charge of global origination and client management.
Mr. Keaney said many Boatmen's trust clients also used that bank for investment management. He said some Boatmen's clients hired Bankers Trust to invest their assets in addition to serving as master trustee.
One Boatmen's client, the Firemen's Retirement System of St. Louis, still has $50 million in an equity investment account at TradeStreet. It did pull $35 million in bond investments out of Boatmen's before the change in custody because Boatmen's portfolio managers resigned to start their own firm.
The pension fund, however, was not put off by NationsBank's exit from institutional trust.
"We were happy with their choice of new custodian because we already had an account with BT that invests in international equity," said John Brewer, executive director for Firemen's Retirement System. He said he liked that his trust officers from Boatmen's now work for Bankers Trust in St. Louis.
Many other Boatmen's clients, both institutional and private, moved accounts to other St. Louis banks, both before and after NationsBank sold the institutional trust portfolio.
"There's no question that many companies picked up business. It really just went everywhere," said Peter F. Mackie, executive vice president of investment management at Commerce Bancorp. in St. Louis.
Mercantile Bancorp., St. Louis, also took on some former Boatmen's clients for investments and custody. "We had record years in both personal trust and institutional trust in new business. We got a lot of managed assets, on the institutional side it was a little more custodial," said Edward D. Higgins, president of Mercantile's trust subsidiary.
More investment accounts could be lost in Florida, where NationsBank acquired Barnett. Last week, CCB Financial Corp., Durham, N.C., announced plans to buy the $3 billion of assets in institutional trust accounts formerly with Barnett.
CCB, which has $600 million of assets under administration and $1.7 billion of assets under management, plans to cross-sell investment management to the Barnett custody clients, said Thomas W. Murray, senior vice president and manager of its trust and investment management division.
"What we're trying to do is have an entry point in Florida," Mr. Murray said. "Then we can offer our full range of services, including investment management and including personal trust."
Mr. Murray, who worked in institutional trust for NationsBank in Atlanta until three years ago, said CCB agreed not to offer commercial lending to the accounts. He added that CCB might get money management accounts from TradeStreet if the clients are not meeting its minimum investment and that CCB could refer bigger accounts to the NationsBank subsidiary.
Another part of the overall decline was the sale in November by NationsBank of ASB Capital Management, a unit in Washington managing about $4 billion of assets for institutional and individual investors, to Chevy Chase Bank.