UMB Financial Corp.'s top asset management executive said turmoil in the financial services industry is creating opportunities for his company to acquire wealth management businesses that others want to divest.
"We are finding a lot of institutions are willing to sit and talk with us now because the market conditions have changed," said Clyde Wendel, the Kansas City, Mo., company's president of asset management and managing director of private banking.
"A lot of banks are sitting and asking themselves, 'Can we really afford to be in all of these businesses?' " he said. "They have to deal with a lot of other issues in other markets, and if a business is not a core competency for them, then they will be willing to talk to someone about selling it."
UMB's wealth management unit is working with an investment banking company to identify acquisition targets both regionally and nationally, Mr. Wendel said.
The company plans to expand its wealth management business in markets in or near its current territory while further expanding its corporate trust business nationally, he said.
"A lot of people wouldn't think that a bank in Kansas City could have these aspirations," he said. "We are supporting a large number of communities in Kansas and Missouri where we really dominate the market."
The $8.2 billion-asset UMB Financial has 136 branches throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, and Arizona.
It has developed a 50% market share in corporate trust in Kansas and Missouri but would like to keep building that business, Mr. Wendel said.
"We want to continue to develop scale and we want to go to where the opportunities are," he said. "We may find a little bank in Iowa where corporate trust is not a part of their long-term strategy and they don't have the scale to compete. We can buy out a team and a book of business and make it part of our firm and add scale."
Geoffrey Bobroff, the president of Bobroff Consulting, agreed that there are more opportunities to make an acquisition, but he questioned whether UMB has "the stomach for it."
"Banks can buy other banks," he said. "They know to do it. They know to consolidate and make the economics work, but only a few banks have been successful with an asset management acquisition, because you just can't leverage that business the same way."
Other analysts said regional banks often struggle to expand beyond their natural service area because a company's brand recognition tends to fade quickly the farther away it moves from its traditional base of customers.
Mr. Wendel said that may prove to be the case for UMB's wealth management business.
"We are just so well known here in the Midwest," he said. "It is hard to see synergies if we did a lift-out or an acquisition in Maine or Massachusetts. We really want to start with our footprint and the contiguous states. There is a lot of business for us that we haven't tapped yet in these states."
UMB, which has $10.913 billion of assets under management, expects to reach $20 billion by the end of 2012, Mr. Wendel said.
"We can't get there organically; we have to have some acquisitions in order to get there," he said.
Mr. Bobroff said that UMB would be hard-pressed to make this leap organically, because it is dealing with "a relatively small footprint."
He said that "an acquisition or a lift-out or a series of acquisitions makes sense," but the real test will be UMB's ability to integrate the businesses it buys.
"It is going to take ingenuity, but it can be done," he said. "The lift-out is much easier culturally, rather than buying a standing business to double their assets. But the drawback of a lift-out is that it doesn't expand their footprint. The lift-out won't increase the amount of customers you can reach, and distribution is king."
UMB has gained a reputation in the wealth management business nationally by developing one of the industry's leading health savings account platforms.
It doubled its health savings account business in 2006 and expects to have $100 million of HSA deposits and investments by the end of the first quarter, up 51.9% from the end of last year, from partnerships with insurers, third-party administrators, and technology companies.
But Mr. Wendel said that the company's wealth management business is more than just a strong health savings account business.
Its corporate trust business, which administers more than $28 billion of municipal and corporate debt, was the fourth-largest in the country through Sept. 30. Assets under management at its proprietary mutual fund arm, UMB Scout Funds, are up 19%, to $5.8 billion, since the end of last year, and UMB plans to add another international fund on Jan. 1.
Mr. Wendel, who is also a vice chairman of UMB Bank, said UMB Financial's goal is to make the asset management business "a much stronger and robust revenue stream for the company overall."
The business currently contributes about 30% of the company's revenue, up from 22% at the end of last year. Mr. Wendel said he expects to increase that further through continued expansion into new markets.
The asset management unit has had a strong trust and investment services business in Kansas City for 90 years, and over the past 10 years it has expanded into the bank's traditional markets with teams in St. Louis, Denver, Springfield, Mo., Oklahoma City, and Wichita.
UMB's asset management arm plans to continue to add executives to these markets. Last week, it hired three executives to expand its team in Denver. It added Maureen K. Barker, an executive from Wells Fargo & Co. in Denver, as president of UMB Asset Management West; John Trujillo Jr., an executive at SunTrust Banks Inc. in Tampa, as a vice president and senior portfolio manager; and Norm Close, an executive at Bank of Cherry Creek in Denver, as a vice president and a trust adviser.
Mr. Wendel said that the Denver wealth management office has doubled its work force to 10 executives since July and expects to add three more people by the end of the first quarter.
He said that he plans to continue to add executives to UMB's existing teams but that the asset management unit will also need to expand beyond these offices.
The unit has already established itself in the Phoenix market by opening an office and plans to add more offices in the West.
"It isn't appropriate to say exactly where we are looking next, I mean, we are always looking in our footprint and in contiguous states, but we'd rather look to the west than into Indiana, Kentucky or Ohio," Mr. Wendel said. "Those are very different markets that are more mature in terms of their population trends. The growth in new rooftops is stronger in the west than in the east of our footprint."
UMB will expand by offering an array of commercial banking products and asset management services in these nontraditional markets, he said.
"We are not going to position ourselves as a retail bank in these markets, but rather as an asset manager," Mr. Wendel said. "These are fast-growing markets. We want to provide boutique services in a market like Phoenix rather than attack it with a supermarket approach."
After spending the past year developing asset management teams in St. Louis and Denver, UMB Asset Management will make moving into moving into new markets a major initiative in 2008, Mr. Wendel said.
He said the unit plans to expand "carefully and cautiously." That goes for markets as well as the product lineup.
"Building branches and a brick-and-mortar approach is an expensive way to enter a market," he said. "We would rather lift out a team in a new market and go with a focused platform of offerings including commercial lending, loan products, and asset management in a new market rather than build branches."
