As the corporate trust departments at U.S. Bank and the Bank of New York continue to snowball through acquisitions, they again topped Thomson Financial’s list of the most active public finance trustees for the first three quarters of 2006.
U.S. Bank, which in July acquired the corporate trust department of Atlanta-based SunTrust Banks Inc., remained the most active trustee bank by both the number of issues, 875, and the total volume they administered, $42.2 billion, through the end of September. Bank of New York also maintained its ranking from the same point of 2005, working on 554 deals totaling $36.1 billion — second on both counts.
Wells Fargo Bank had the third most active trust department, working on $25.6 billion through 504 debt sales. JPMorgan Chase & Co. rounded out the top tier of trustee banks, coming in fourth by administering 250 issues worth a combined $17.3 billion.
The acquisition one-upmanship between the top two trustee banks continued at the beginning of this month as Bank of New York completed a trade in which it absorbed JPMorgan’s corporate trust unit in exchange for its own retail business.
While Thomson’s third-quarter statistics account for U.S. Bank’s most recent add-on, they do not yet show the results of Bank of New York’s addition.
“[Bank of New York] swapped a low-growth, no-growth retail franchise with low-cost deposits for a higher growth business with more international growth that had institutional deposits,” explained equity analyst Thomas McCrohan of Janney Montgomery Scott LLC. “We’re all trying to struggle with trying to figure out what the valuation should do. We believe it should result in multiple expansion, but how much we don’t yet know.”
He added that financial results from the combined firm would not be available until January, when the fourth quarter earnings report is filed.
Combining the figures for Bank of New York and JPMorgan suggests that, while the firm would be the largest trustee by volume, U.S. Bank would remain the largest trustee by the number of deals administered.
Industry experts said we likely have not seen the end of corporate trust consolidation.
Executive vice president Terry McRoberts of U.S. Bank would not say if his firm plans to acquire any more competitors in the near future. He did allow, however, that growth fits into U.S. Bank’s business plan.
“Certainly scale is a big part of it,” McRoberts said.
But Karen Peetz, head of Bank of New York’s global corporate trust business, was more candid.
“Yes, absolutely,” she said when asked if her bank is still looking to buy, adding that recent acquisitions have by now given Bank of New York geographical anchors in most important markets nationwide.
“Now, where we are with 36 offices and 550 people, we will be just selectively adding because we have a terrific footprint now,” Peetz said.
She added that a quick glance at the Thomson statistics shows just how consolidated the industry has become in the last few years. The data shows that the fifth-ranked trustee by volume, Manufacturers & Traders Trust Co. worked on 48 deals worth a total of $5.0 billion — less than a third of the volume JPMorgan administered.
“My sense would be that consolidation will continue,” Peetz said. “And where we used to talk about the top three providers being left, it wouldn’t surprise me if it was a couple large providers, and then I think you’ll always have some smaller regional bank providers because it ties in with their municipal and branch business. I think this dichotomy between really big and then frankly really small is going to continue. I think the mid-tier is gone.”
Regional providers’ advantage is in long-term relationships and their ability to provide hands-on, local service, said equity analyst Richard Bove of Punk, Ziegel & Co. “It gets back down to service and relationship,” Bove said.
New Jersey-based Commerce Bank is one of those regional providers and jumped to sixth by total volume in Thomson’s rankings at the end of 2006’s first three quarters, after sitting at 10th this time last year. It administered 29 issues totaling $3.7 billion of municipal debt.
Its jump was based largely on being appointed to a $2.7 billion deal done by the New Jersey Transportation Trust Fund Authority in May. This was the result of a relationship with the authority dating back to 1995, said Kenneth Nilson, senior vice president at Commerce.
Nilson said he helped start Commerce’s corporate trust department 15 years ago and plans to remain “firmly independent.” They are not currently being courted for acquisition, he said.
