Private Bankers in Palm Beach Find Turf Crowded Near the Surf

PALM BEACH, Fla. -- It's not hard to find a private banker on this well-manicured island.

If you amble down Royal Palm Way, a tree-shaded street less than a mile long, you'll find 11 private bank and trust operations. And nine of them are owned by companies outside Florida.

In the town of Palm Beach proper, there are more than 25 bank and trust offices catering to the wealthy -- up from three in 1979.

It's easy to understand the lure.

Per capita income in Palm Beach County is 37% higher than for Florida as a whole, according to data cited by J.P. Morgan & Co. when it applied for a thrift charter in the state. Median family income in the town of Palm Beach is $78,604, more than double that of Palm Beach County, according to estimates from Financial Institution Consultants Inc.

And Florida itself already beats the averages for affluence. Three percent of the state's 5.2 million households have annual incomes of at least $250,00 and investible assets of $1 million -- the general threshold to qualify for private banking services, according to PSI Inc., a research firm in Tampa.

"Florida is the Switzerland of the South," said Kenneth J. Tarr, president of Credit Suisse Asset Management Inc. and a former banker for Bessemer Trust Co. in Palm Beach.

Profits Are Elusive

Yet with so many banks scrambling for a piece of Palm Beach's wealth, it is tough to make a profit.

The fight has become so intense that some institutions are cutting fees for managing clients' investments.

"You don't establish an operation in Palm Beach because you want to make a lot of money," said Mr. Tarr. "It's an arrow in your quiver of being competitive."

Deborah Talbot, head of domestic private banking at Chase Manhattan Corp., said her bank charges about 20 basis points less to manage an investment portfolio in Florida than in New York.

Few of her competitors will admit to similar discounts, but they are quick to accuse their rivals of slashing standard management fees -- usually 1% of assets under management.

Deals for Good Customers

Trowbridge Callaway 3d, president of U.S. Trust Co. of Florida, said his company "basically will not" cut prices. But he said the bank does adjust fees for families who bring in multiple accounts.

Others say the pressures are immense. "Literally, I've had people walk into my office who say, |I've been to Morgan, I've been to U.S. Trust, what can you offer?'" said J. Bradford Greer, president of Chase Florida.

Mr. Greer's office sits halfway down Royal Palm Way, a strip flanked on the Atlantic Ocean side by J.P. Morgan Trust Co. of Florida and on the Lake Worth side by Bank of Boston-Florida. The watery views from many of these offices are spectacular. So are the stresses.

David Grant, vice president in charge of marketing at Barnett Banks Trust Co., the largest indigenous trust bank in Florida, said local banks sometimes have the sense of being surrounded by out-of-state poachers.

"You certainly see it as a threat," he said. "It is an extremely attractive market, so one can't be surprised to see everyone try to get their share. It probably will continue to be more competitive in years to come."

Due for a Shakeout

Ultimately, however, a shakeout among private banking and trust operations is inevitable. Bankers say some of it will occur as parent companies fail or are consolidated. The lack of earnings will force other players to drop out.

"When you get fewer banks, you will see more rational pricing," said Ms. Talbot of Chase.

Meanwhile, the invaders are expanding. The 10 largest trust banks in Palm Beach County, as measured by assets under management, are owned by out-of-state companies in the Northeast and Midwest.

Morgan bought a failed Florida thrift this summer to offer loans and deposit-taking services to its trust customers.

U.S. Trust Company of Florida, another unit of a New York company, followed later in the summer by buying a failed thrift with an eye toward expanding into Florida's west coast, another attractive pocket of wealth.

Enter the Swiss

Several Swiss banks, which only recently entered the lucrative U.S. private banking market, are rushing to open offices in the Sunshine State.

Northern Trust Bank of Florida, a subsidiary of the Chicago banking company, was the first interloper in Florida's private banking confines. Since opening its doors in 1971, it has expanded to 12 offices.

Chase's Mr. Greer, who moved to Palm Beach in 1979 to run Northern Trust's unit, said it took five years for Northern to become profitable.

He added that Chase's Palm Beach office is making money while its new Miami operation, opened this year, is budgeted to be profitable by late 1993.

Northern Trust, viewed as a model private bank and trust company by many of its competitors, plans to open six new offices in affluent areas of Florida within the next three years.

Wave Hit in 1982

Until recently, the northerners were viewed by local institutions as carpetbaggers. They came to Florida en masse in 1982 when the state opened its trust vault doors to out-of-state players.

Northern and NCNB Corp. already had trust operations in the state as a result of being grandfathered under a state law passed in the 1970s that restricted outsiders.

The first to come in with loans, estate planning, and money management services after the 1982 law was passed were Bankers Trust New York Corp., Chicago's Harris Trust and Savings Bank, and Detroit's Comerica Inc.

Today, the top trust banks in Palm Beach, as measured by assets under management, are New York's U.S. Trust Co., Comerica, Citicorp, Bankers Trust, and Morgan.

A Tale of Two Interstates

The banks were generally following "snowbirds," wealthy clients who retired to Florida. The midwesterners usually headed to the state's west coast to serve customers who came down Interstate 75, while New York banks opened in Palm Beach and Miami to greet retirees traveling down Interstate 95.

The retirees come not only for sunny weather and social opportunities -- they also like the big break on estate taxes in Florida and the absence of a state income tax.

"Florida has been, and many would hope that it always will be, a good place to set up a domicile," said Richard Card, president of Morgan's new thrift in Palm Beach.

U.S. and foreign banks also are trying to lure assets into their Florida offices from wealthy people in Latin America and South America who are seeking a haven for their funds in the United States.

But banks are not alone in their pursuit of the wealthy Florida market. At every turn, the rich meet representatives of brokers, mutual fund companies, and other purveyors of investment products and money-management skills.

"It's wise to assume in Florida that everyone is your competition," said Bruce T. Prolow, president of Morgan's Florida trust unit.

Brokerages Dominate

Only 30% of the revenues generated in Florida from affluent families go to banks, said James Buck, senior vice president of PSI Inc.

Mutual fund companies like Fidelity Investments and brokerage firms like Merrill Lynch & Co. and Dean Witter Reynolds Inc. are more dominant players, he said.

"Banks have a very small share of the investment business from these households," Mr. Buck said. "There's unbelievable room for growth, but they'll have to fight for it."

It's no wonder, then, that banks are doing their utmost to distinguish themselves from competitors.

Northern, for example, supplements its standard private banker's fare of talks on fine arts and antiquities with offbeat marketing pitches.

It recently invited clients and prospective customers to seminars on plastic surgery and varicose veins.

"We are fully aware that competition is going to get greater and greater," said Ray Marchman, senior vice president and director of marketing for Northern.

The banks also are trying to expand geographically. Most have their sights set on the affluent corridor in southeast Florida between Vero Beach and Miami and in the Gulf of Mexico communities around Sarasota and Naples.

"The market is very deep," said Mark Stevens, president of Northern Trust of Florida. "We have barely scratched the surface." [Tabular Data Omitted]

PHOTO : HOLDING COURT on Royal Palm Way are, from the top, bankers Richard Card (left) and Bruce T. Prolow of J.P. Morgan; Trowbridge Callaway 3d of U.S. Trust; and Brad Greer of Chase Manhattan.

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