National City Corp., seeking to improve service to its wealthiest customers, is buying a high-end investments boutique.
Cleveland-based National City announced Monday that it plans to buy Sterling Ltd. Co., based in nearby Pepper Pike, Ohio, and manages about $435 million in assets for 100 families. Terms were not disclosed.
Although the unit is relatively small, it could play an important strategic role for $53 billion-asset National City, said chairman David Daberko.
It should better position National City's private client group to win business from wealthy customers of other divisions, such as corporate banking and consumer finance, he said. The private client group, which manages $21.9 billion in assets, has not been properly equipped to pursue those customers, he said.
"We simply couldn't look them in the eye and say, 'We can meet your needs for your wealth management,'" Mr. Daberko said.
The push for more business from wealthy clients is part of a broader strategy at the bank to increase investment management.
National City's investment management line, half of which is private client business, last year contributed 7% of the company's net income of $737 million. Mr. Daberko said it is on target for 8.5% this year, 10% in 1998, and "into the teens over the next couple of years."
By contrast, National City earns one-third of its profits from retail deposits.
"That's a dead business, it's a no-growth business," Mr. Daberko said. "Therefore to meet our earning objectives we've got to be successful in other businesses."
The pending acquisition is the latest in a series of steps to boost income from investment management.
This year National City started a financial planning group for affluent customers. Over the past few years, it expanded its mutual fund family, opened an asset-allocation account, and bought a full-service brokerage and investment banking firm, Raffensperger, Hughes & Co.
Sterling assists family offices with financial plans and investment decisions. Also, $165 million of its assets under management are invested in limited partnerships, such as hedge funds.
"As a relatively traditional bank and trust operation, we didn't really provide the high level of service that the very wealthy request," Mr. Daberko said. "We also did not have the investment vehicles that that segment of the population is used to."
National City's own investment banking subsidiary worked on the deal, while Berkshire Capital Corp., New York, advised Sterling.
John Burns, who founded Sterling in 1980, will co-manage the private client group with Jeffrey M. Biggar, an executive vice president of National City.
Mr. Burns, 51, said he did not consider selling his company until about a year ago when potential suitors, including other banks from around the country, introduced themselves.
His choice, he said, was either to compete with banks that are expanding private client services or to join them.
"The big boys want to get into this business," he said. "I don't want to compete with those types of people. With National City Bank, I've got a chance to deal from a position of strength."
Although the price of the deal could not be learned, wealth management boutiques are now priced at 2.5 to 3.5 times revenues, according to an investment banker who has advised similar deals.