Bank mergers are laying the foundation for what could be the next wave of money management acquisitions.
The mergers are creating large pools of assets looking for management, and parents well-capitalized to acquire the talent to manage them.
Industry observers say money management is a can't-miss opportunity for fee-based income for the banks, which may end up acquiring more firms to add products and become true multiproduct managers.
PNC Bank Corp., Philadelphia, is held up as one model of a bank successfully integrating money management; additionally, observers point out some past mergers, such as the combination of BankAmerica Corp. and Continental Bank Corp., have made for good money management operations, while the recent merger of Chemical Banking Corp. and Chase Manhattan Corp. has potential.
The spate of bank mergers isn't over, and among the players that could emerge, companies such as Boatmen's Bancshares Inc., Barnett Banks Inc. and SunTrust Banks Inc. have sizable and active money management organizations.
But do these stepchildren create true, multiproduct managers, or just larger extensions of the banks' trust departments?
The investment management units of the merged banks "don't have the pieces to challenge the best multiproduct managers," said Glen Casey, consultant with Cerulli Associates, Boston.
Most of the merger-related advantages seen so far have been on distribution, particularly in mutual funds, he said.
"Few banks fit the bill in being multiproduct managers in their own right, so the combination of most of these banks were involving firms that weren't quite there," said Mr. Casey. He noted many banks - including First Chicago Corp., Chemical and Chase - sold their investment management businesses in the late 1980s.
"They were more interested in shoring up their balance sheets and now, hindsight being 20/20, are recognizing they missed an opportunity to participate in the growth of the industry," he said.
In the case of the Chemical/Chase merger, the combination likely will create a stronger money management operation, said Mr. Casey. He noted Chemical had been successful in attracting assets, but mainly short-term assets, while Chase's private banking functions have been far more successful in bringing in long-term assets under management.
The importance institutional money management had in either bank before the merger affects the post-merger outlook, noted Chas Burkhart, president of Investment Counseling Inc., West Conshohocken, Pa.
The real potential lies in tying together the client bases of the two partners. "The dynamics for the business change for a several-billion-dollar trust-dominated department vs. a $30 billion multidistribution-channel business," he said.
Culture also can be a determining factor. Mr. Burkhart noted Continental long had an institutional investment management focus, which it brought to last year's merger with BankAmerica. BankAmerica, meanwhile, had been restructuring its asset management operations after a previous merger.
BankAmerica had acquired Security Pacific Corp. in 1992 and merged Security Pacific Investment Management with InterCash Capital Advisors in 1993 to create Bank of America Capital Management, a subsidiary with about $22 billion in assets. After it acquired Continental Bank, Continental's investment management subsidiary, renamed Bank of America Investment Advisors of Chicago, remained separate from Bank of America Capital Management.
"I think that's a good one," said Mr. Burkhart.
But not all mergers are good ones for investment management, and that is where acquisitions come in, say the experts.
Bruce McEver, president of Berkshire Capital Corp., New York, warned the continuing mergers don't take care of the basic problem of a historical investment management weakness among banks.
Indeed, the larger asset base only makes the problem larger in scale, and makes an acquisition a more likely solution, he said.
Banks have had a harder time holding on to key investment executives because they could not match the compensation, equity participation and entrepreneurial environment the independent firms offered their principals.
That trend was still visible this year, at Mellon Bank, which experienced a massive defection of management from its Boston Co. Asset Management subsidiary, and on a smaller scale in the departures of a team of investment professionals from SunBank Capital Management to start their own firm, DePrince, Race & Zollo Inc.
Some banks have tried to replicate the atmosphere of an independent money management firm by establishing holding company structures. PNC Bank is an example of one bank that has integrated money management firms well, said Mr. Casey. The bank has made several acquisitions, including BlackRock Financial Management and Midlantic Corp., parent of Midlantic Bank.
PNC has four money management firms with different styles, each working as a separate, wholly owned subsidiary: PNC Institutional Management Corp., a cash manager with $25.7 billion under management; BlackRock, a fixed-income manager with $38.7 billion; PNC Equity Advisors, a growth equity manager with $9.4 billion; and Provident Capital Management, a value manager with $9.1 billion.
"We're strong believers in the notion of macromanagers," said Young Chin, president and CEO of PCM. He noted the bank is in "an acquisition mode for firms, but also for individuals" to continue its asset management expansion.
Meanwhile, the mergers may cause a cooling in bank acquisitions of mutual fund assets, but bank acquisitions of institutional money managers could get a boost, say industry experts.
Theoretically, merged banks would be much better capitalized for acquisitions, said Mr. Casey.
A bank may decide to call off the search for a mutual fund acquisition when it appears that a merger will give it access to the other bank's mutual fund family, such as the Chase/Chemical merger, said Mr. Casey. But after the merger, it may try to fill gaps in its product line with an acquisition, he explained.
Given their size, banks have to look to acquisitions and liftouts of investment management teams in order to fix their weaknesses in investment management, rather than try to develop their own, said Mr. McEver.
"It's harder to make a fix of something that's larger unless you buy," he said. "You can't just go out there and hire a new chief investment officer and that's it."
