Regional banks see gold in wealth management

Less cyclical than traditional banking, the business is helping offset lending losses

May 2, 2010 @ 12:01 am

By Hilary Johnson

Regional banks, still reeling from their real estate exposure, are finding relief — and a healthy measure of profitability — in their wealth management businesses.

“The wealth management business, if properly managed, is often quite successful in enhancing the profitability of a regional bank,” said Gerard Cassidy, a managing director at RBC Capital Markets, who said that banks want to call attention to these efforts.

In the first quarter, most of the 50 banks in the KBW Regional Banking Index that offer wealth management services reported positive results from the business.

Wintrust Financial Corp., which has $12 billion in assets, exceeded analysts' earnings estimates in the first quarter, thanks in part to the performance of its Wayne Hummer Wealth Management unit, which reported a 46% increase in revenue.

At PrivateBancorp, which has $12.8 billion in assets, a 16% increase in wealth management fee income helped mitigate an increased provision for loan losses of about $54 million.

Boston Private Financial Holdings Inc., a bank with $6 billion in assets, eked out a profit in the first quarter after several losing periods.

But the bank's fee income, which includes its wealth advisory and investment management businesses, showed a 12% increase from the year-earlier quarter.

“As the economy continues to recover, we will focus on our existing markets, where we can deliver locally driven wealth management services,” Timothy L. Vaill, the bank's chairman and chief executive, said in its earnings release.

EARNINGS DRIVER

Daniel Arnold, an analyst at Sandler O'Neill Partners LP who covers several regional banks, said that wealth management is a positive driver of earnings.

“From an earnings stability perspective, it's more attractive than traditional banking revenue, which fluctuates dramatically with credit cycles,” he said.

“The wealth business is largely based on assets under management plus the transactional fees that you get. The fluctuations are a lot less severe, so you're looking at a more stable revenue stream,” Mr. Arnold said.

At City National Corp., which has $20.1 billion in assets, first-quarter earnings rose by 110% to $15.7 million, helped in part by the company's wealth management fee income, which grew by 9% from a year earlier.

“The acquisitions of Convergent Wealth Advisors and Lee Munder Capital Group have added significantly to our capabilities,” Christopher Carey, the bank's chief financial officer, said during a teleconference related to the company's earnings report.

“Regional banks understand that wealth management is a better business” than their core banking business, Mr. Cassidy said.

E-mail Hilary Johnson at hjohnson@investmentnews.com.

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