Wilmington Trust Corp.'s agreement to buy AST Capital Trust Co. is more about expanding its retirement plan services business — in both capabilities and scale — than an effort to expand geographically.
The deal, announced Thursday, would nearly double the retirement plan assets that the Delaware company administers, to $41 billion, and would double the number of plans it serves, to 3,000.
Bill Farrell, an executive vice president at Wilmington Trust and the head of its corporate clients services business, said in an interview Thursday that his company wants to expand its fee-based services.
In the fourth quarter its wealth advisory services fees increased 15% from a year earlier, to $59.1 million, and revenue from corporate client services rose 12%, to $26.2 million.
Mr. Farrell said the acquisition would help Wilmington Trust further diversify its fee-based revenue stream.
AST Capital, with offices in Phoenix and Wilmington, Del., offers directed trustee, trust administration, and back-office services through advisers to retirement plans, wealthy individuals and families, and institutional investors.
Wilmington Trust expects the deal to close this summer and plans to add AST Capital to the corporate retirement services group in its corporate client services business.
AST Capital administers more than $28 billion of trust assets. Its assets under administration also include more than $19 billion in 1,500 retirement plans.
Mr. Farrell said that his company does not discuss possible deals, but he also said it plans to continue to add scale and capabilities to its retirement services business.
"This is truly an annuity business," he said. "If you pick up more plans, because participants continue to invest and the value of the assets go up, there is an opportunity to develop more revenue."
The acquisition would also add $1.8 billion of assets under administration to Wilmington Trust's wealth advisory services business.
Mark A. Graham, who was promoted to run the wealth advisory services unit Jan. 17, said in an interview Tuesday that he expects it to increase assets by expanding nationally through acquisitions and by cross-selling to its parent's Middle Atlantic commercial banking customers.
Analysts said the unit probably will focus more on organic growth, since Mr. Graham's background is in the commercial banking business.
"Right now a lot of banks are finding discomfort when it comes to doing acquisitions and liftouts on the wealth management side," said Geoffrey Bobroff, an analyst with Bobroff Consulting Inc. in East Greenwich, R.I. "Right now organic growth is perceived as the best model, so banks are trying to position themselves for that kind of growth, but significant organic growth is rather unrealistic, no matter the leadership."
Mr. Graham succeeded Rodney Wood, who left in October to run the single-family office of the Henry Ford estates in Michigan. Mr. Graham, a Wilmington Trust employee since 1983, has worked to develop the company's wealth management and commercial banking operations in southeastern Pennsylvania for the past 10 years.
He said there are opportunities for the wealth advisory unit to use the commercial bank's relationships with business owners, entrepreneurs, and real estate developers. "There is a lot of overlap between our primary businesses and some great synergies. There are certainly a lot of opportunities for organic growth."
Wilmington Trust, which has $49.8 billion of assets under management, has been working for the past several years to develop its national platform. Ted T. Cecala, its chairman and chief executive, said in an interview last month that his company would continue to expand its wealth advisory services domestically through acquisitions.
Since buying the Boston wealth manager Bingham Legg Advisers LLC in June, Wilmington Trust has operations in five of the nation's top seven high-net-worth markets. In addition to Boston, it has offices in New York, Philadelphia, south Florida, and Southern California, but not in Chicago and San Francisco.
Mr. Cecala said that Wilmington Trust would look to add "teams or small firms" through acquisitions. Nothing was in its "gun sights" at the time, but he cited Chicago and the Pacific Northwest as attractive areas.
Mr. Farrell said the AST Capital deal has been in the works for months but has flown under the radar.
"This is a deal less about geography and more about picking up additional retirement plans and capabilities," he said. "We believe this is a one plus one equals three combination of two retirement services providers."
Wilmington Trust has more than six decades of experience servicing corporate retirement plans, Mr. Farrell said. It provides directed trustee, custodial, trading, and paying agent services for more than 1,500 retirement and employee benefit plans holding $22 billion of assets.
Gregory W. Tschider, AST Capital's president, would join Wilmington Trust and lead its retirement services business.
Mr. Bobroff said Wilmington Trust will continue to take a cautious approach to deals, since it has had some bad luck with two investment managers it bought: Roxbury Capital Management LLC of Los Angeles and Cramer Rosenthal McGlynn LLC of New York.
In the third quarter of 2006, Wilmington Trust absorbed a $72.3 million noncash impairment writedown after Roxbury discontinued its microcap fund and announced plans to quit the fixed-income business. In the third quarter of last year Wilmington Trust's earnings were hurt by a revenue decrease at Cramer Rosenthal, where equity market volatility reduced hedge fund performance fees, Mr. Bobroff said.
"The banking industry knows how to do bank mergers in their sleep, but acquiring asset managers is more complicated and requires a stronger stomach," he said. "Therefore, banks don't do them very well. They tend to shy away from them."
