Trust revenue at banks climbed sharply last year, allaying fears that 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.
In 1991, 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 funds.
Continuing Rise Foreseen
In a significant mood change from 1991, 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 Robert 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 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 aside 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.
The Merger Factor
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 this year, it would have ranked fifth 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.
Gain 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, to add 10% to 15% to trust revenue this 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."
|Aging of the Population'
Proprietary funds give banks the ability to better compete in the 401(k) market, he said, while trust departments have long offered commingled funds, mutual funds have fewer marketing restrictions.
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.