Study suggests banks with 'wealth-management' segments are more profitable. JPMorgan Chase was the biggest U.S. bank-based wealth manager last year on the basis of trust revenue, according to the latest edition of the Bank Insurance & Securities Association's (BISA) Who's Who in Bank Wealth Management.

The annual study, based mainly on FDIC data, is meant to "describe and define the outlines" of that bank-based wealth-management industry, according to John Vaughan Jr., president of Wayne, Pa.-based BISA.

The study defines wealth management as as "fiduciary, investment management, and/or financial planning services for" individuals, households and families with between $500,000 and $1 million in investable assets."

The study found that banks that provide wealth-management services were 77% more profitable in 2007 than the average bank. In 2006 banks providing such wealth-management services were 68% more profitable.

Overall, banks that report to the FDIC saw median net income decline by about 10% year over year last year while median net income at "WM banks" declined by 6%.

Sub-set

"Fee-based businesses like wealth management can help smooth out earnings when loan income suffers, as bank-industry experience in 2007 suggests," says Andrew Singer, head of Mamaroneck, N.Y.-based Bank Insurance Market Research Group and author of Who's Who in Bank Wealth Management.

New York-based JPMorgan had $8.07 billion in trust revenue last year. At the other extremity of the 60-bank scale, Wichita, Kan.-based INTRUST Financial reported $14.93 million in trust-derived sales.

Among institutions joining the 60-bank list of BISA's top wealth managers for the first time were Racine, Wisc.-based Johnson Financial in forty-seventh place, Chicago-based PrivateBancorp in fifty-fourth place, Gulfport, Miss.-based Hancock Holding Company in fifty-sixth place, Joliet, Ill.-based First Midwest Bancorp in fifty-seventh place, and South Bend, Ind.-based 1st Source Corporation in fifty-eighth place.

The BISA study identifies 29 institutions among the 60 top trust-revenue catchers that reported earnings -- not just revenue -- derived from their wealth-management segments in SEC 10-K filings (though in many cases these include earnings from institutional business).

For the middle-ranking company in this 29-bank set, wealth-management contributed 13% of its 2007 consolidated net earnings. In 2006 the median rate of wealth-management contribution among 10-k filers to overall earnings was 10%.

Port in a storm

But this doesn't necessarily mean that wealth-management is getting more traction at banks, according to Singer. "Banks struggled against an unfavorable yield curve in the first part of the year and a severe mortgage lending crisis in the second half," he says. "Overall net earnings took a beating."

For instance, although wealth-management business accounted for more than half of the parent-company earnings at New York-based Citigroup and at Columbus, Ohio-based Huntington Bancshares last year, this is more readily attributable to declines in other business lines than to surges in private-client business at these companies.

After Citigroup and Huntington, Chicago-based Northern Trust saw the largest relative contribution to net income from wealth management (47%). Next was Santa Barbara, Calif.-based Pacific Capital Bancorp (34% -- which last year redefined wealth management to include loan revenue from 11 affluent retail branches -- Kansas City, Mo.-based UMB Financial (24%) and Westerly R.I.-based Washington Trust Bancorp (24%).

In 2006, Northern Trust topped the list of banks whose wealth-management divisions whose net incomes made up the highest proportion of overall net income (again, 47%) followed by Mellon Financial (now part of Bank of New York Mellon) with 32% and Wilmington, Del.-based Wilmington Trust with 21%.

Among the 50 institutions for which minimum thresholds were discernible, 23 said that $1 million in investable assets was the least required for a client to be considered for "wealth-management" treatment.

Midwestern institutions generally had lower minimums than banks on either of the coasts. At $10 million New York-based Bessemer had the highest minimum, according to the BISA study. -FWR

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