Good Gracious!
By SUZANNE MCGEE | MORE ARTICLES BY AUTHOR
A shake-out in the private-banking industry has begun, as wealthy clients flee to the perceived safety of larger institutions.
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ALAN TRIPP HAS WITNESSED FAR MORE FINANCIAL SHOCKS than the average American, beginning with the 1929 Wall Street crash, when he was a child. The Bryn Mawr, Pa.-based entrepreneur also knows all about risk: His former company, Product Resources International, specialized in finding ways to commercialize bleeding-edge technologies.
[pic]
Thomas Michael Alleman(L); Brad Trent (R)
Clients no longer ask for access to hot products, but for protection, says Wells Fargo's Ron Florance (left). Frances Aldrich Sevilla-Sacasa (right) of U.S. Trust says clients want help navigating through "uncertainty."
But this year's market mayhem caused more anxiety than he could stomach. On Sept. 11, his 91st birthday, Tripp ended a 30-year relationship with his financial advisers at Lehman Brothers' private banking division, Neuberger Berman -- just days before Lehman went under. "I was verbally assured that my assets were safe," he recalls, "but I know when things are falling apart, funny things can happen." He yanked his money and sent it to another bank.
Plenty of other rich investors are just as dismayed, a result of dismal investment performance and mounting concern about the strength of financial institutions. More than 80% of wealthy investors in one survey said they planned to withdraw at least some of their money from their private bank, and more than half plan to dump their banks altogether.
Many of the respondents probably were venting, rather expressing actual plans. But it's clear that private banks -- outfits that cater to the wealthy and are owned by banks, brokerages and others -- haven't been immune to the turmoil of the past year. Assets under management at the top 40 private banks increased just 4.3% in the year through June 30, versus 20%-plus in each of the previous two years, according to an annual study by Barron's. See nearby table for a ranking of the top 40, based on assets in $1 million-plus accounts.
Reflecting both weak investment returns and fewer new accounts, the asset growth was the slowest in the seven years in which Barron's has tracked private banking. And the 12 months covered in our latest survey ended before things turned really ugly in the final two weeks of September.
As chief executive officer of JPMorgan Private Bank, Mary Callahan Erdoes has lived through 15 years of industry-wide changes. "But a period of 15 days has changed everything once again," she says. "Every single client is reassessing the level of confidence and trust they have in the institutions that advise them."
Table: 2008 Top Wealth Managers in the U.S.
WITH SOME VENERABLE INSTITUTIONS failing and others vanishing in mergers, many clients have little confidence that any firm is above the fray. "It's not surprising that clients are wondering aloud if they can entrust their family's balance sheet and finances to a firm that can't seem to manage its own balance sheet and finances," Erdoes says.
Already, the private-banking landscape is undergoing tectonic shifts. By early next year, the wealth-management division of Merrill Lynch, which has topped Barron's annual survey every year since it was launched in 2001, will be absorbed by Bank of America's private-banking operations, No. 3 as of June. The combined entity will be a behemoth with some $1.7 trillion in assets under management in accounts of more than $1 million, more than twice the size of second-ranked Citigroup's wealth-management division. That assumes BofA holds onto those clients and their assets.
Citigroup is negotiating some big changes of its own. Its high-profile private-banking honcho, Sallie Krawcheck, left last month after a power struggle with Citigroup CEO Vikram Pandit.
In the wake of Lehman Brothers' bankruptcy filing, meanwhile, two private-equity firms have acquired Neuberger Berman, which will operate as an independent entity. Barclays has taken on other private-banking assets from Lehman. (Our ranking excludes Lehman, instead showing where the independent Neuberger and reconfigured Barclays would have stood at June 30.)
National City, a Cleveland-based bank long favored by wealthy families in the Midwest, appears to have suffered a real loss of cachet. Amid rampant fears about its mortgage holdings, National City's private-banking assets fell 11% in the year through June 30, to $25 billion.
It was against this backdrop -- and that of a rapidly falling stock market -- that research firm Prince & Associates surveyed wealthy investors in September. Some 81% said they would pull at least some of their money from their private bank, up from 68% in July. The portion that planned to dump their bank nearly doubled, to 57% from 30% in July. And 86% said they wouldn't recommend their bank to friends, up from 38%.
By SUZANNE MCGEE | MORE ARTICLES BY AUTHOR
A shake-out in the private-banking industry has begun, as wealthy clients flee to the perceived safety of larger institutions.
TEXT SIZE
DIGG
Find out about distributing multiple copies of this article SINGLE PAGE
REPRINTS
GET RSS
Background image
Subscribe Now Close this window
With these readers:
My Yahoo Reader Google Reader Pluck Reader
Windows Live Reader MSN Reader Newsgator Reader
Netvibes Reader AOL Reader Bloglines Reader
Or copy the rss link:
ALAN TRIPP HAS WITNESSED FAR MORE FINANCIAL SHOCKS than the average American, beginning with the 1929 Wall Street crash, when he was a child. The Bryn Mawr, Pa.-based entrepreneur also knows all about risk: His former company, Product Resources International, specialized in finding ways to commercialize bleeding-edge technologies.
[pic]
Thomas Michael Alleman(L); Brad Trent (R)
Clients no longer ask for access to hot products, but for protection, says Wells Fargo's Ron Florance (left). Frances Aldrich Sevilla-Sacasa (right) of U.S. Trust says clients want help navigating through "uncertainty."
But this year's market mayhem caused more anxiety than he could stomach. On Sept. 11, his 91st birthday, Tripp ended a 30-year relationship with his financial advisers at Lehman Brothers' private banking division, Neuberger Berman -- just days before Lehman went under. "I was verbally assured that my assets were safe," he recalls, "but I know when things are falling apart, funny things can happen." He yanked his money and sent it to another bank.
Plenty of other rich investors are just as dismayed, a result of dismal investment performance and mounting concern about the strength of financial institutions. More than 80% of wealthy investors in one survey said they planned to withdraw at least some of their money from their private bank, and more than half plan to dump their banks altogether.
Many of the respondents probably were venting, rather expressing actual plans. But it's clear that private banks -- outfits that cater to the wealthy and are owned by banks, brokerages and others -- haven't been immune to the turmoil of the past year. Assets under management at the top 40 private banks increased just 4.3% in the year through June 30, versus 20%-plus in each of the previous two years, according to an annual study by Barron's. See nearby table for a ranking of the top 40, based on assets in $1 million-plus accounts.
Reflecting both weak investment returns and fewer new accounts, the asset growth was the slowest in the seven years in which Barron's has tracked private banking. And the 12 months covered in our latest survey ended before things turned really ugly in the final two weeks of September.
As chief executive officer of JPMorgan Private Bank, Mary Callahan Erdoes has lived through 15 years of industry-wide changes. "But a period of 15 days has changed everything once again," she says. "Every single client is reassessing the level of confidence and trust they have in the institutions that advise them."
Table: 2008 Top Wealth Managers in the U.S.
WITH SOME VENERABLE INSTITUTIONS failing and others vanishing in mergers, many clients have little confidence that any firm is above the fray. "It's not surprising that clients are wondering aloud if they can entrust their family's balance sheet and finances to a firm that can't seem to manage its own balance sheet and finances," Erdoes says.
Already, the private-banking landscape is undergoing tectonic shifts. By early next year, the wealth-management division of Merrill Lynch, which has topped Barron's annual survey every year since it was launched in 2001, will be absorbed by Bank of America's private-banking operations, No. 3 as of June. The combined entity will be a behemoth with some $1.7 trillion in assets under management in accounts of more than $1 million, more than twice the size of second-ranked Citigroup's wealth-management division. That assumes BofA holds onto those clients and their assets.
Citigroup is negotiating some big changes of its own. Its high-profile private-banking honcho, Sallie Krawcheck, left last month after a power struggle with Citigroup CEO Vikram Pandit.
In the wake of Lehman Brothers' bankruptcy filing, meanwhile, two private-equity firms have acquired Neuberger Berman, which will operate as an independent entity. Barclays has taken on other private-banking assets from Lehman. (Our ranking excludes Lehman, instead showing where the independent Neuberger and reconfigured Barclays would have stood at June 30.)
National City, a Cleveland-based bank long favored by wealthy families in the Midwest, appears to have suffered a real loss of cachet. Amid rampant fears about its mortgage holdings, National City's private-banking assets fell 11% in the year through June 30, to $25 billion.
It was against this backdrop -- and that of a rapidly falling stock market -- that research firm Prince & Associates surveyed wealthy investors in September. Some 81% said they would pull at least some of their money from their private bank, up from 68% in July. The portion that planned to dump their bank nearly doubled, to 57% from 30% in July. And 86% said they wouldn't recommend their bank to friends, up from 38%.
