Boston Private Builds A Better Balance Sheet
Is Boston Private Financial Holdings making a comeback? After a string of unsuccessful RIA acquisitions, soured loans at its private bank division, and a drawdown of $154 million in federal TARP aid, the RIA consolidator’s outlook was glum. Now there are signs that things are turning around.
This month Boston Private announced it had paid off its remaining $104 million in Troubled Asset Relief Program funding, a move that one analyst said wasn’t expected until later this year. It also announced a secondary stock offering and expects to raise $23.7 million, which would go towards improving its capital ratios. As of March 31, nonperforming loans accounted for 2.02 percent of total loans, which is well below the bad debt ratios on its peers’ balance sheets, according to Standard & Poor’s. And fresh management arrives next month in the form of a new chief executive, Clayton G. Deutsch, a senior partner at McKinsey & Co. and the global leader of its Merger Management Practice. Morningstar says that Deutsch’s experience in bank mergers suggests the company is looking to put itself up for sale. But Erik Oja, an analyst for equity research at S&P, says the company is in a position to do some buying itself, noting there’s more than $1.3 billion in cash and investments on its balance sheet.
Of course, acquisitions may have been part of the problem for Boston Private. Morningstar suggests the company paid too much for some of the businesses it bought. When the market crashed, loan performance on the books of some of Boston Private’s subsidiaries, particularly those in Florida, headed south. It began selling subsidiaries to raise cash and to divest itself of poor performers. Sand Hill Advisors, RINET Co., Westfield Capital Management and Gibraltar Private Bank & Trust were put on the block, and Boston Private Value Investors, formed after the company acquired Taylor Investments in 2001, was sold back to managers.
“Their chargeoffs were extremely aggressive as well. They just didn’t let anything linger, and it got to the point where people were wondering if anything was going to be left,” Oja says. But the moves produced results; chargeoffs were down significantly in the first quarter this year to $2.8 million, after an average of $10 million in each of the previous four quarters. He expects loans to grow 1.2 percent this year, above that of the firm’s peers. “They’ve done a good job of cleaning up everything they had to,” he says.
With three business lines–private banking, wealth advisory services, and investment management for wealthy individuals and institutional players like pension funds and foundations–Boston Private caters to the high-net-worth client so cherished in the marketplace. Net interest income was $159.5 million last year, up about 6 percent. Assets under management have dropped sharply at the firm, from $22 billion two years ago to about $7 billion today. But financial advice is still a big part of its world. These days more than half its revenue comes mostly from the asset management and wealth advisory sides of its business, Morningstar says. It remains in the RIA business with two subsidiaries: Dalton, Greiner, Hartman, Maher & Co., and Anchor Capital Advisors LLC. It also holds a minority stake in the parent company of RIA Coldstream Capital Management Inc. Morningstar predicts AUM at Boston Private will grow at a modest 7 percent annually, adding, “We do not anticipate any changes to fee rates, so we assume that management fees will increase with client assets.”
