Perhaps it's a sign that the worst days of the credit cycle are ending or perhaps it's just an attempt to change the topic, but in the past week or so there has been a resurgence in use of the "f" word by bank executives.

Not that the word (fees, of course) had gone out of style. Rather, the subject of how to build or grow fee-generating businesses had faded into the background a bit as investors and regulators bore down on credit quality and just enough corporate borrowers got into trouble to let the topic quiet down. When SunTrust Banks Inc. and BB&T Corp. reported earnings last week, both had problem loans to talk about, but the overall news at each company was mainly positive. Earnings at both were higher and each company had solid lending results. SunTrust had sold off a portion of its distressed debt, and BB&T's presentation left little doubt the company would continue looking for acquisition opportunities, especially in asset management - not the kind of talk one would get from an executive team fearing the near future.

Add to the mix First Union Corp.'s optimism about growth in its Capital Management Group. The business generates more than a quarter of First Union's revenues, and it would like to see that figure rise to somewhere in the vicinity of 40%.

The emphasis on fees is especially telling given the interest rate environment. With rates coming down, there is at least the opportunity for a pop in spread income, assuming, of course, there are deposits at hand to work with - hardly a given at this point. And, as pure-play mortgage companies have shown, the interest rate cycle brings advantages that an economic slowdown doesn't completely offset, so long as the slowdown is not too severe and does not last too long.

But for companies looking to follow through on the fee-income talk of the last generation, this may be the best opportunity to buy scale for years, assuming the bear market is nearer to its end than its beginning.

On different scales, BB&T and First Union have both been active acquirers, and if each is looking again to bulk up in asset management through acquisition, they will have plenty of company. European financial firms have been buying up U.S. asset managers at a rapid pace, and a handful of U.S. banks are viewed as perpetually on the prowl. Citigroup Inc. is an obvious example and Bank of New York and State Street Corp., neither of whose business mixes are typical for banks, also are oft-mentioned.

If only there were sellers. With fees - and prices - based on assets under management, some companies that had been quite large a year ago are now confronted with strategic decisions of their own. Find a buyer early and use that company's distribution to make up for the depletion of assets over the last year? Or wait and see if the economies of scale that made them so profitable will return?

"Some of those companies have taken themselves off the market until conditions improve," said one M&A adviser to financial companies. "But some money managers, faced with an inability to drive revenues, may decide they want to cash out. Selling out to somebody big solves a lot of problems in those cases."

If recent deals are an indication, the next round of pickups may focus on institutional, rather than retail, managers. That certainly has been the bias among European bidders of late; the Dutch firm Robeco Groep's agreement to acquire the U.S. fund manager Harbor Capital Advisors and Societe Generale's deal last week for Trust Company of the West's parent, TCW Group, are the most recent examples.

The heightened appeal of asset managers may hint at diminished appeal of insurance agencies, last year's hot item. BB&T's steady string of insurance acquisitions and then Wells Fargo & Co.'s agreement to buy ACO Brokerage Holdings and its Acordia agency chain have perhaps inevitably begun to choke off opportunities for new deals. "Pricing has gone up, particularly in the larger agencies," BB&T chairman and chief executive John Allison said last week.


Competing for all those asset managers are the insurers, which bring their own enduring interest in the business. Prudential PLC, now that its bid to acquire American General Corp. is at best a long shot, moves once again to the front of the list of companies thought to be interested in Liberty Financial Cos., the owner of the Stein Roe and Farnham mutual fund family that put itself up for sale late last year.Prudential has declined to say what specific action it might pursue were the American General deal to fall apart, but it has indicated it remains committed to expansion in the United States. It would also have the $600 million breakup fee on its American General deal to work with, which could help any future purchase efforts.

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