Trust revenue at banks climbed sharply last year, allaying fears that income growth had stalled in this important fee business.
The top 100 banks in the field posted an aggregate 10.2% jump in trust revenue, marking only the second time in five years that the growth rate hit double digits, according to an American Banker survey. (Complete tables begin on page 12.)
In 199 1, the increase had been less than 7%, setting off a round of soul-searching in the industry.
Experts say that last year's pickup was caused mainly by appreciation of assets in a strong investment climate.
Managed assets at the top 100 grew 13.39% in 1992, increasing the base on which fees were levied.
Also bolstering income was intensified marketing of mutual funds.
Continuing Rise Foreseen
In a significant mood change from a year ago, bankers and analysts now expect continued growth in the trust business.
They cite an aging population and new successes in mutual funds, which often are run from trust departments.
"Overall, our view is that trust, for a number of demographic reasons, will continue to be one of the major areas of growth in banking," said Tetenbaum, executive vice president of First Manhattan Consulting Group.
For the top 100 banks in the field, trust already has become important to their bottom line. In 1992, trust businesses accounted
counted for nearly 5% of the group's operating income, more than double the share of 1983, the survey found.
That trend will continue as trust business grows and as more assets are consolidated into fewer hands, said Gail Schneider, senior vice president in charge of trusts and estates at Chase Manhattan Corp.
Shifting in the Ranks
The survey found that J.P, Morgan & Co. remained the leader in trust revenues last year, pulling in $786 million.
That amounted to nearly 8% of the New York company's total operating income.
Meanwhile, Citicorp pushed de Bankers Trust New York Corp. to take the No. 2 spot -- by a margin of just $18 million.
In another shift at the top of the ranks, Northern Trust Corp. jumped from No. 10 to No. 7, passing Chemical Banking Corp., Mellon Bank Corp., and NationsBank Corp.
Elsewhere in the rankings, many of the increases resulted from mergers and acquisitions. And more such gains are occurring this year.
For example, if Mellon Bank Corp. had acquired the Boston Co. in 1992, instead of the this year, it would have in trust revenue and third in discretionary assets.
Instead, it ranked 10th and sixth respectively.
Likewise, if Chemical's acquisition this year of units of First City Bancorporation of Texas had taken place in 1992, Chemical would have ranked sixth in trust revenue and 10th in discretionary assets.
Instead, it ranked eighth and 11th respectively.
Gains from Fund Sales
Some banks have been gaining trust assets from the sale of homegrown mutual funds, which soared in popularity amid a nationwide boom in the funds.
NBD Bancorp, which posted a large gain in trust revenue and assets, expects its proprietary mutual funds, the Woodward Funds, will add 10% to 15% to trust revenue next year.
"The dynamics are good for trust operations for a variety of reasons," said Richard L. Foersterling, NBD's first vice president for trust business product development.
"Banks are getting very good at broadening their product lines -- principally through proprietary funds."
Proprietary funds give banks the ability to better compete in the 401(k) market, he said.
And, while trust departments have long offered commingled funds. mutual funds have fewer marketing restrictions, he said.
|Aging of the Population'
Chase, posting results that were typical of the top 100, reported that its trust revenue increased by 8.5% last year.
"We are seeing a greater interest in trust primarily through the aging of the population and the more complex issues related to money management," said Ms. Schneider.
Last year, she said, Chase had more charitable trusts established as aging customers looked to leave gifts -- a trend she expects to continue.
Chase also has seen growth from business owners who cash out and create trusts.
Like other bank companies, Chase was "buoyed by the robust investment market," Ms. Schneider said. In 1992, the Standard & Poor's 500 index re turned 10.5%.
As a rule of thumb, as much as 70% of trust revenue is derived from the market value of securities, said Thomas Abraham, a New York-based trust consultant. The rest comes from transaction fees.
In a ranking of banks by trust assets, BankAmerica Corp. Posted one of the most extraordinary gains -- 258%. That propelled the San Francisco giant to No. 3 from No. 14 in 1992.
The bulk of the gain, however, stemmed from Bank of America's recalculation of security Pacific's assets to square with its own accounting methods.
The change was made after consultation with the Office of the Comptroller of the Currency, the company said.