Zions Bancorp. has started an asset management unit for wealthy customers, and analysts are split on whether the timing - late to market and amid difficult market conditions - would make assets hard to amass.
George Feiger, an executive vice president at Zions, said the company has opened Contango Capital Advisors to target the owners of small and midsize businesses with at least $1 million of assets to manage. Contango's headquarters is in Berkeley, Calif., and Mr. Feiger said it has hired a staff for its first wealth management office, in Phoenix, and will continue to grow by hiring strategically.
A Zions unit, Western National Trust Co., manages $1 billion of assets. The banking company has gained a modest amount of high-net-worth assets from this trust unit, Mr. Feiger said, but Contango is Zions' first business unit fully dedicated to wealth management. And it comes into the market years after many banks began in the business.
Mr. Feiger, who is also Contango's president, said it would develop business by working through Zions' affiliated community banks. The Salt Lake City banking company operates six hometown banks in the West. Just over one-third of its business is in Utah and Idaho; one-third more is in California; and the rest is in Nevada, Arizona, and Colorado. It also runs a $750 million-asset commercial bank in Seattle.
Once Contango establishes a reputation, Mr. Feiger said, it will move beyond the Zions footprint.
"I don't think there is any reason not to move east," Mr. Feiger said. "We will start in the West because we have affiliates in the West, but nothing will stop us from moving to the East. We want to start where we have the strongest possibility for growth."
Burton Greenwald, a Philadelphia analyst at BJ Greenwald & Associates, said it looks very late in the game for a bank to be just entering asset management.
"What a firm like this has to recognize is that they are coming into the competition without a track record and they will be up against people with long-term performance records that they can point to," he said. "That is a tough fight to win in this business."
Mr. Greenwald said Zions must compete against not only other banks but also brand-name asset managers that have high profiles and strong records of success. "A de novo operation in asset management is a real struggle not only to gain credibility but to gain any sort of brand," he said. "It will take a couple of years to earn any sort of business."
Harris H. Simmons, Zions' chairman and chief executive officer, said at a conference last month that he does not expect the wealth management business to become profitable before 2006.
Mr. Feiger said he thinks it is a good time for a company to begin offering wealth management. Established companies are finding it difficult to shift to open architecture and advisory services, he said, but companies like Contango can open with these capabilities. And a second analyst goes even further.
There is no such thing as being late to the game in asset management when so many customers remain underserved, said Rus Prince, an investment analyst at Prince & Associates in Shelton, Conn. "The odds are pretty good you can build a business," he said, from the underserved asset management customers who are winnable by a new player.
"There are some firms that have been in it for a while who have botched it up royally," he added. "If you come in and are process-driven rather than product-driven, you can be … successful."
A banking company like Zions can develop a strong book of business by working through its existing customers, he said.
"No one has market share, and no one ever will," Mr. Prince said. "Asset management is an area where people are always in a state of flux. If a firm is well-positioned and develops a solid story, they will be successful."
"The presumption that a firm that has been in this business for five years is doing it right is ridiculous and it is inaccurate," he said. "Just because someone has the capabilities or has been doing it for some time doesn't mean they are doing it right. It is not just having the capabilities; it is implementing them."
"Look at the competitors," Mr. Feiger said. "Trust companies are stuffy and old-fashioned, and brokerage companies have been discredited by scandals. The big financial institutions are trying to move in an advisory and open-architecture direction. They are moving away from commission structures and are having great difficulty doing this. We are starting at the point they want to end up in. They have brand and recognition, but we are already operating in the model that they all aspire to get into."
Zions, a $30 billion-asset banking company, grew in the 1990s through a number of small acquisitions but has turned its attention to growing from within. Mr. Simmons, its CEO, told a September conference on Martha's Vineyard that his company does not plan any acquisitions in the near future. Rather, it expects to build internally with initiatives like asset management, he said.
Mr. Feiger, who was the global head of private banking for the Swiss giant UBS AG before being hired by Zions in September 2003 to develop Contango, said it would be very strategic about growing. The unit is carefully hiring advisers to generate growth, he said, and it would consider an acquisition down the road to potentially generate further growth.
"Since we are small, we can operate anywhere," he said. "We want to look at places with a core group of clients and maybe acquire to gain a foothold. We are not geographically constrained. Any place is a great place. Every region has entrepreneurs and businesses."
Mr. Prince, basically, shared this sense of possibility. If a company can create a strong platform, he said, even if it is new to asset management, it can succeed.
"Anybody can be successful in this universe. Anybody," Mr. Prince said.
