Will Sequor Pay Off for BankAmerica?

BankAmerica is counting on its pending merger with Security Pacific as a way to reenter and strengthen key fee-based corporate businesses, bank executives said.

But recent moves by Security Pacific suggest that BankAmerica may get less help than it bargained for in bolstering its wholesale and international banking operations.

One reason is the questionable profitability of Sequor Group Inc., a subsidiary of Security Pacific. Sequor, based in New York, handles the bank's wholesale services such as cash management and trust.

BankAmerica considered the unit a nugget, said a source close to the merger.

"Going forward, BankAmerica will stress all types of fee businesses," said Fred DeBussey, an analyst with Fitch Investor Service in New York. "I'm sure those areas will get some special attention."

Profitability in Doubt

But observers question whether the processing company continues to be profitable.

Michael V. Caggiano, the unit's chairman, had publicly declared he sought a joint venture with another bank.

The combined operation would enable him to cut costs, a way to stay profitable in a highly competitive market. Though he said he spoke with several banks, he found no takers.

In the past, Sequor has been highly profitable, says analysts. The unit earned $78 million in 1990, making it one of the few bright spots in Security Pacific's merchant bank, which was later disbanded.

Sequor's structure and focus are similar to those of Banker's Trust ProfitCo unit, or Manufacturers Hanover's GeoServe - separate entities dedicated to processing businesses such as cash management and trust. Sequor was established in 1989.

Close Link to Markets

Security Pacific kept this highly profitable unit at arm's length. It was based in New York, tied closely to the capital markets, and marketed its services independently of the parent company.

In the past year, Security Pacific has consolidated its cash management services within the unit. Sequor had acquired additional processing businesses from banks eager to exit the field.

Richard Rosenberg, BankAmerica's chairman and the chairman of the proposed merged banks, said in the merger announcement the new bank will be even better positioned for global operations.

A spokesman for Security Pacific said Sequor is viewed as a core business of the new bank.

Another indication of lagging profits is that Sequor is reportedly shopping around part of its business. Banking observers said Sequor is seeking to sell a type of trust business, corporate trust, in which it pays stock and bond holders on behalf of corporations. Security Pacific declined to comment on whether it plans to sell the business.

Judging from BankAmerica's announcement of the responsibility of executives, it appears that the Sequor unit, as a separate entity, will be eliminated. The services it provides will folded back in BankAmerica and divided between two Security Pacific executives: Nicholas B. Binkley, chairman and chief executive officer of Security Pacific Financial Services System Inc., and Jerry A. Grundhofer, president and chief executive officer of Security Pacific National Bank. Both are slated to become vice chairmen.

BankAmerica officials declined to comment on its plans for wholesale services.

Internal Move Suggested

"With a much larger organization and some of the opportunities that exist in the combined company, it might be more attractive to merge Sequor into BankAmerica," said Thaddeus W. Paluszek, an analyst at Kidder, Peabody & Co.,

The Sequor unit has an established presence in institutional trust, a service BankAmerica had exited. The San Francisco bank eliminated its trust department in 1988, followed its inability to get its back office in order. In the past year, BankAmerica was considering reentering this market.

Sequor also offers a global custody services, a trust service that has become a growing area for fee income, as more investors buy foreign-issued assets.

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