Thrift banks reach for a slice of the trust business
Commercial banks may feel that everybody's trying to get into their act.Skip to next paragraph
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The securities industry, life insurance companies, a department store retailer, mutual funds, even a steel company, have moved into the financial services area that banks have traditionally dominated.
Now banks face another territorial challenge: Thrift institutions have started to invade their trust business.
Trusts are funds of money or property administered by individuals or institutions for the benefit of another individual or organization. Trust managers should be professional investors, presumably more capable of handling the funds wisely than the owners of the money. Banks manage many billions in trust money.
The invasion is starting in in Massachusetts where NOW accounts -- checking deposits that pay interest rates -- got their start and eventually spread to the rest of the nation. In several weeks two Massachusetts savings banks, Charlestown Savings Bank and Worcester County Institution for Savings, will launch a trust service for their customers across the state.
It will be a cooperative business. A Bridgeport, Conn., investment manager, Wright Investors Service, will provide investment advice and execution. Investors Bank & Trust Company, Boston, will act as custodian. Corroon & Black Actuarial Services Inc. will provide actuarial information for dealing with pension assets. And the two mutual banks will round up trust customers.
Under the Depository Institutions Deregulation and Monetary Control Act of 1980, federally chartered thrift institutions (savings and loan associations and mutual savings banks) were allowed to enter the trust business. Necessary implementing regulations were approved by the Federal Home Loan Bank Board about a year ago. Some 15 S&Ls have applied to the board for the power to run a trust department. But few if any have taken advantage of the new power because of the high costs involved in launching a trust service. ''The last thing our members need is something that loses money,'' said a spokesman for the United States League of Savings Associations.
Some states, faced with the possibility of state-chartered thrifts switching to federal status to obtain the new banking powers, have passed legislation allowing state-chartered thrifts to set up trust services.
Aside from a few historically anomalous situations, the two Massachusetts mutual savings banks, both state chartered, will be among the first thrifts, if not the first, in the nation to offer trust services. They are acting under a state law passed about 18 months ago. Both are in the process of selecting a chief trust officer.
These two banks hope to provide trust services for as many as possible of the 160 other state chartered mutual savings banks in Massachusetts.
Other states that have passed laws permitting state-chartered thrifts to enter the trust business include New Hampshire, New York State, Pennsylvania, Maine, Alaska, Oregon, Rhode Island, Vermont, Washington, and New Jersey. The Connecticut General Assembly defeated a bill for this purpose last year, but the legislation could emerge again for reconsideration.
''Given the increasing public interest in investment services,'' says John J. Moughty Jr., a vice-president of Wright Investors Service, ''I think you will see a very rapidly rising tide of thrifts applying for trust powers.''
The goal of the two Massachusetts savings banks is to serve what Mr. Moughty describes as ''the great middle market for trust services.'' This might include individual trust accounts ranging from $10,000 to upward of $400,000 and employee benefit accounts ranging from $100,000 to $2 million or so.
''We feel we own this middle segment of the market, which is not now served too well,'' said Anthony J. Keller, senior vice-president of Worcester County Institution for Savings, headquartered in Worcester, Mass. The wealthy already have access to trust services.
Wright Investors, which already manages around $1 billion, could not directly serve this market economically, Mr. Moughty said. Nor would it be profitable for middle-sized thrift institutions to hire expensive investment managers on their own to look after a modest amount of trust investments. But working in cooperation, the two banks expect to see their trust activities become profitable in short order.
Customers will pay an annual fee of 1 percent of assets for the trust service.
Because the thrifts have close ties with their communities and their officers can easily sit down with local customers to talk over their financial situations , Mr. Moughty figures the new trust service will challenge both the commercial banks and the new nonbank invaders of the banking area. ''We will have everybody outgunned, including Sears,'' he says.
Wright Investors will be talking about setting up a similar trust service for two New York thrifts this week. Mr. Moughty expects other money managers to jump soon into the thrift market for trust services.
Charlestown's Mr. Jemson sees new trust service as part of a long-term strategy for the 1980s and beyond which will allow thrifts to offer a broader range of financial services in competition with commercial banks and other institutions. ''The lines are blurring,'' he said.