The seven largest U.S. master trust and custody banks held the same rankings this year as last, with the total assets of first-place ranked State Street Bank & Trust Co. rising above $1 trillion.
Total master trust/custody U.S. tax-exempt assets as of June 30 was $4.987 trillion, up 15.5% from last year. Throughout the year, U.S. banks bought and sold trust/custody business units.
Mellon Bank and Bank of New York rank second and third respectively, each reporting asset growth in both the trust and custody business. Bank of New York has since acquired the custody business of Wells Fargo Bank, and expects to add $80 billion in master trust/custody assets from Wells by the end of the year.
Northern Trust Co. is fourth. Bankers Trust Co. came in fifth, its asset figures boosted in part by the purchase of the custody business of Boatmen's Bancshares Inc. from NationsBank Corp.
All figures are from June 30th.
Without making acquisitions, State Street and Mellon grew their business through new clients.
"A key driver this year has been market consolidations," said Paul Maregni, senior vice president and head of marketing for Mellon.
As other banks have exited the business, banks for which the trust and custody business is a core operation have gained numerous new customers.
"We also experienced an enrichment from our existing clients moving additional assets to Mellon, and from market appreciation. For us, this has been record new business," Mr. Maregni said.
When a client's custodian is involved in acquisition activity, the larger clients tend to view it as an opportunity to review the whole marketplace, said Sheila Penrose, executive vice president of corporate and institutional services at Northern Trust Co.
Northern was selected in July to handle custody of the $59 billion fund of the Teacher Retirement System of Texas. That means Northern Trust now has $617 billion in master trust/custody assets, up from $533.5 billion from last year, said Ms. Penrose said. Northern's growth in assets in the last year came from new business.
"We've been a significant beneficiary of others exiting the business (trust/custody). We haven't engaged in acquisitions, and are not going through a period of digestion, so new clients look comfortably upon that, as well as existing clients. Master trust and custody is our core business," Penrose said.
Wells Fargo Bank has dropped completely out of the custody business, but it's hanging onto $30 billion in trust assets. Wells, which sold its custody operation to Bank of New York has not intention of returning to it, said Sean Thomas, head of sales and marketing for Wells' institutional trust.
Wells didn't see find the margins in institutional custody to be attractive, especially considering that Wells would have to compete with mammoth custodians like State Street, Mr. Thomas said.
"Wells tends to be more of a middle-market player," Mr. Thomas said. It's current strategy is to grow its master trust business as a platform for a bundled 401K product aimed at the middle-market segment.
"There's a potential for some alliances down the road, to enhance the 401k bundled product," Mr. Thomas said.
Wells' trust business grew by $6.4 billion in the last year, which Mr. Thomas characterizes as successful considering the growth happened during Wells' purchase of First Interstate Bancorp and many banks lose customers after acquisitions are announced.
Bank executives said today's clients are much more demanding than those of even five years ago.
The role of the trust/custodian is expanded because, even though clients continue to want the best investment value, they want other services as well. Banks are continuing to upgrade access software programs that allow clients to track their investments.
"Client requirements continue to grow and get more complex as they get in more and different kinds of investment instruments and want help monitoring and measuring," said Mellon's Mr. Maregni.
"It's still a people business, but clients still tend to rate us on the relationship we have as an organization," he said.
Northern Trust's Ms. Penrose said Northern developed a proprietary risk management program for clients.
The program allows clients to monitor and analyze their portfolios online.
Custodians are much more than just custodians these days, said Fred Ricciardi, an executive vice president at Bank of New York.
"It's a much more complex business now. We provide solutions as well as products. The clients want this, and we provide it," he said.