Regional US banks are becoming more active in the wealth management space, as a number of developments show.

Regional banks in the US may be seen as less glamorous than their Wall Street counterparts, and may not therefore be typically associated with high-end wealth management, but they have been increasingly active in this space over the past year.

As an example of this, kicking off 2012, Bryn Mawr Bank announced the acquisition of Davidson Trust Company, bolstering assets under management at the acquiring firm’s wealth management division by around $1 billion. The firm also previously acquired Lau Associates, a family office based in Delaware, and the private wealth management group of Hershey Trust Company, as well as launching its own trust division.

Picking up RIAs

Adding to this picture, the latest data from Schwab Advisor Services showed that purchases of registered investment advisor firms by regional banks had picked up: they were the acquiring firm in 10 per cent of cases last year, compared to just 4 per cent in 2010. While this figure remains below previous years – such as in 2005, when regional banks were the purchasers in 20 per cent of cases (source: Registered Rep) – it is nevertheless a marked increase.

Buying an RIA allows the bank to showcase its expertise, at a group level, of dealing with high-end clients, even if the RIA operates as an independent business unit. An obvious example is GenSpring Family Offices, which is an affiliate of SunTrust Banks.

“While each bank will have an individual concept in mind for acquisitions, they have a common perception that referring their clients to a bank-owned business, rather than to an outside advisor, can create synergies that are accretive. They can leverage the wealth management expertise of an RIA and increase their offering for high net worth clients,” said Nick Georgis, vice president, Schwab Advisor Services.

A recovering sector

“Banks appear to be coming back to life regarding acquisitions. They tend to have a cyclical interest in buying RIAs. They are coming out of a very difficult economic cycle and they are considering their next strategic move,” said Georgis.

However, he added that it was “really too soon to tell how active banks will become” in this space, and that, “because they tend to only buy locally, they are not likely to ever be as dominant as national acquirers or RIAs”.

Commercial property woes

Broadly speaking, the regional banking sector was badly hit during the financial crisis, with around 100 resulting failures as of October 2009, according to the Economist. Many regional banks were exposed to problems originating in the commercial property market, and did not have business models that were as well diversified as their larger rivals. In 2008 the S&P Regional Banks Index (Total Return) lost around 45 per cent. It made further losses in 2009 before bouncing back 29 per cent in 2010. Last year, it lost around 14 per cent.

However, as a group, regional banks are making progress: they have moved closer to overcoming the commercial real estate and loans problems of the crisis, and posted results above analyst estimates for the fourth quarter, according to a report in Reuters. This means they could now be looking ahead.

Larger, smaller players

There is, though, a distinction between the small regional players and the larger ones, such as US Bancorp and PNC. Larger regional players – in which some include giant Wells Fargo – have all been growing their brands steadily in the wealth management space. Last year Wells Fargo streamlined its offering for wealthy clients, creating Abbot Downing, and US Bancorp created a new brand for its ultra high net worth business unit, Ascent Private Capital Management, focusing on issues such as wealth transfer and legacy planning.

PNC Financial is another notable firm in this space, and according to a comment from its chairman and chief executive, James Rohr, in the bank’s fourth quarter earnings conference call in January 2012, regarding wealth management: "We will continue to invest in this business in 2012, as we see opportunities to capture a greater share of our current customers’ investable assets which we estimate to be more than $1 trillion."

First Republic, a larger firm which concentrates on the core markets of San Francisco, Los Angeles, New York, Boston, Portland and San Diego, was rarely out of these pages last year, as it consistently expanded its operations.

Meanwhile, banks such as Fifth Third, Key Private Bank, and Regions Financial have made hires within their wealth management divisions lately.

It could be argued that regional banks stand to benefit from having their brands more aligned with their local communities than Wall Street in the current climate, as this ties in well with the service nature of wealth management. Secondly, there are opportunities for crossovers with their small-business banking divisions.  

Some analysts, such as Barclays Capital banking analyst Jason Goldberg, who spoke to CNBC this week, are predicting a better year for regional banks. It remains to be seen whether they will use this as a chance to grow their market share among high net worth clients in 2012.