NEW YORK -- While Chase Manhattan Corp. shops for the perfect asset management acquisition, its competitors are gaining a powerful foothold in the business.
"Chase hasn't done anything close to what a Chase Manhattan could do in asset management," said Burt Greenwald, a Philadelphia-based financial services consultant. "But they will make an acquisition down the road, although I've been saying that for two years."
Critics say Chase has missed many asset management opportunities. Competitors, meanwhile, have snapped up larger properties that would have jump-started Chase's 3-year-old asset management business. Chase had $190 billion under management at year end, of which only $11.3 billion, or about 6%, was U.S. institutional tax-exempt.
Nearly all of the $7 billion in new U.S. institutional asset management business Chase gained in 1998 came from current commercial banking clients for whom Chase now manages investible assets and from money management clients, said Debbie Duncan, executive vice president of Chase's global asset management and mutual fund business.
About $5.5 billion of the new assets were from Chase clients that had no previous pension fund management relationship with Chase. The remainder was due to growth in existing relationships, she said. "We believe the competitive advantage is to leverage Chase's relationships with clients throughout the globe. There's a tremendous potential in doing that and our growth this year is indicative of that," she said.
For five years, competitor Mellon Bank Corp., Philadelphia, has been gobbling up asset management firms -- The Boston Co., Dreyfus Corp. and Founders Asset Management Co. At year end, Mellon had nearly $400 billion under management, of which $145 billion was U.S. institutional tax-exempt.
By the end of 1998, Mellon had increased its institutional asset management fees by 23%, to $212 million from $171 million at year-end 1997. Mellon's total trust and investment management fee revenue -- of which institutional is a part -- increased 26% to $915 million at year end 1998 compared with $727 million at year-end 1997, according to financial reports.
Total assets managed by competitor Merrill Lynch & Co. Inc. topped the $500 billion mark at year's end, due in large part to its 1997 acquisition of Mercury Asset Management, London. New York-based Merrill reported a 29% increase in asset management fees during the year.
In addition to their acquisitions, Mellon and Merrill have made high-profile moves into institutional asset management by courting pension fund consultants and responding to pension funds' requests for proposals. Chase is doing neither.
There is speculation that Chase is contemplating a sizable bank merger -- which could provide it with an asset management property -- but Chase in 1998 focused on smaller strategic purchases of firms that provided services the bank could sell to current clients. For instance, its May acquisition of the global custody business of Morgan Stanley Dean Witter increased Chase's total assets under trust and custody to nearly $5 trillion.
Chase then sought a customer through its longtime relationship with General Motors Investment Management Corp., New York. GMIMCo awarded Chase custody of $7 billion in private market assets and hired Chase to provide global securities trading, foreign exchange and derivatives support.
Because the bank is focused on expanding existing relationships, Chase does not feel it is necessary to establish relationships with pension fund consultants, Ms. Duncan said.
Leveraging current bank clients is quicker and a great deal less expensive than marketing on a national basis, as Mellon and Merrill are doing. When Chase released its fourth-quarter earnings, Chairman Walter Shipley reiterated the bank's focus: to increase its businesses with "a disciplined approach to risk, capital and expense management."
Chase's total assets under management grew 20%, from $150 billion at year-end 1997.
In addition to the institutional asset management operation in New York, Chase Bank of Texas in Austin, formerly Texas Commerce Bank, has a growing pension management focus. The institutional group there has established 25 relationships with pension fund consultants experimentally, Ms. Duncan said, to see if it is a worthwhile endeavor for the entire group.
Chase Bank of Texas also will be the center of Chase's 401(k) record-keeping business, which it hopes will draw institutional asset management business to the bank. Overall, Chase gained 90 new 401(k) plan clients in 1998, mostly middle-market corporations.
Chase would benefit from an additional mutual fund complex with a strong brand name, Mr. Greenwald said. T. Rowe Price Associates, Baltimore, would be an outstanding choice for Chase, but it's not really for sale, he said. Janus Capital Corp. is scheduled to be spun off this year from Kansas City Southern Industries Inc., along with the railroad's other financial services companies; it might become a buying opportunity, he said.
