June 26, 2003

U.S. Trust Buys State Street Asset Management Unit

The Schwab subsidiary increases its presence in we

U.S. Trust, a wholly owned subsidiary of The Charles Schwab Corp., has acquired State Street's private asset management division for $365 million in cash. The deal gives U.S. Trust a foothold in wealthy New England, particularly Boston, which is the fourth largest wealth market in the nation.

The deal, which is still subject to regulatory approval, is expected to close in the fourth quarter. State Street's Private Asset Management business provides investment management advice, trust, estate planning, and financial advisory services to clients with $2 million or more in investable assets. U.S. Trust now manages $80 billion in assets; the deal will give it another $11.5 billion in assets.

Chip Roame, managing principal of Tiburon Strategic Advisors in Tiburon, California, says the move is a good one "for Schwab, its customers, and shareholders." Schwab's clientele is largely made up of Baby Boomers, he says, "and as these folks age, they are saving more money, liquifying their money, and inheriting new money, so Schwab is recognizing the need to offer more advice-oriented products and services to satisfy their existing customer base."

Roame believes there's "an opportunity to consolidate and revolutionize the high-net-worth advice space. There are many firms with sideline private client businesses the size of State Street's. Schwab could consolidate a handful of these and add its innovation to take a stagnant business to the next level."

But Tom Grzymala, president of Alexandria Financial Associates in Alexandria, Virginia, thinks the deal is more indicative of "the bad blood that exists between Charles Schwab and U.S. Trust." The combination, he says, "isn't doing well. Apparently, Schwab isn't sending U.S. Trust enough money to manage, so they went out and bought State Street."

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