Is Boston Private Financial Holdings making a comeback? After a string of unsuccessful RIA acquisitions, soured home construction loans at its California private bank affiliate, 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 for the firm, which caters to high-net-worth clients with local clusters of private banking, wealth advisory, and investment management subsidiaries.
In June, 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 issued a secondary stock offering mid-month, raising $25 million; another offering of 1.1 million shares was sold to The Carlyle Group. The firm says the proceeds will be used to improve its capital ratios. As of March 31, nonperforming loans accounted for 2.02 percent of its total loans, which is well below the bad debt ratios on its peers' balance sheets, according to Standard & Poor's. And fresh management arrives this 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, Boston Private does not have a great record with past acquisitions. Morningstar suggests the company paid too much for some of the businesses it bought. When the market crashed, the performance of home construction loans on the books of some of its subsidiaries, particularly those in Florida and California, headed south. To raise capital, it sold five of its 15 subsidiaries. Sand Hill Advisors, RINET Co., Westfield Capital Management and Gibraltar Private Bank & Trust and Boston Private Value Investors were all sold last year, most of them back to their own management teams.
“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.
The firm recorded a strong first-quarter profit, as net interest income increased 12 percent and provision from loan losses fell significantly. 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 game. These days more than half its revenue comes 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.”