U.S. Trust Corp.
U.S. Trust Corp.
Incorporated: 1853 as the United States Trust Co. of
Total Assets: $476.8 million (1995)
Stock Exchanges: NASDAQ
SICs: 6022 State Commercial Banks; 6091 Nondeposit Trust Facilities; 6712 Bank Holding Companies
U.S. Trust Corp., the nation’s oldest trust company, is a bank holding company that, through subsidiaries, provides financial services to individuals and institutions in four principal business segments: asset management, private banking, special fiduciary, and corporate trust. U.S. Trust considers itself to be a specialty market financial services company rather than a traditional bank. Its principal line of business is investment management, fiduciary and private banking services to affluent individuals and families. In 1995 it had $47.4 billion in assets under its management and $203.8 billion in assets under its adminitration.
Servant to the 19th Century’s Superrich
In 1853 a group of influential business leaders raised $1 million to create the United States Trust Co. of New York, the nation’s first trust company. The creation of a financial company that would act as executor and trustee for the funds of individuals and institutions was an innovative idea, for such trust functions, to the extent that they existed at all, were being performed by individuals, not institutions. Following passage of a bill by the state legislature chartering U.S. Trust, the company’s founders selected a board of trustees that included 30 prominent New York industrialists, merchants, bankers, and civic leaders. Joseph Lawrence was elected president and John Aikman Stewart was named secretary. U.S. Trust began, in its first year, an unbroken tradition of paying an annual dividend.
U.S. Trust’s founders included many of the wealthiest men of their day. Among them were the renowned inventor, industrialist, and philanthropist Peter Cooper; Marshall Field, founder of the famed department store; and Erastus Corning, a leading railroad developer and a manufacturer of iron and steel. The company’s first office was established at 40 Wall Street; it moved across the street to 48 Wall Street four years later.
In spite of the star-studded cast of tycoons among its founders, U.S. Trust did not thrive as a trust company during its early years. Most Americans of means held their assets in local real estate or business ventures rather than in cash. There was little opportunity to invest in stocks because few businesses were publicly held. U.S. Trust protected itself against failure by also engaging in more typical banking and investing activities, making commercial and personal loans, purchasing mortgages, and engaging in other investments. By 1886 it led all New York City institutions in deposits, with $30 million.
Emerging capital markets made it possible for U.S. Trust to float large bond issues to finance major construction projects and industrial growth. Beginning with the New York Central Rail Road in 1855, the company’s corporate clients issued securities financing such monumental ventures as the construction of many of the nation’s railroads and the building of the Panama Canal. U.S. Trust served as corporate trustee for these transactions, handling the administration, processing, and recordkeeping for the securities involved.
In 1887, U.S. Trust acquired two small buildings at 45 and 47 Wall Street, which were razed for a new nine-story building headquarters at 45 Wall Street, opened in 1889. This address was to remain U.S. Trust’s home for the next 100 years. The same conservatism and stability was reflected in the company’s management. After 11 years as secretary, Stewart left U.S. Trust at President Lincoln’s urgent request to become assistant treasurer of the United States. He returned to the company after the Civil War, serving 37 years as president and another 24 years as chairman of the board before retiring at the age of 102.
Surviving Panics and Depressions
U.S. Trust was a rock of strength as financial panics gripped Wall Street in 1857, 1873, 1884, 1893, and 1907. By the turn of the century the creation of large and widely scattered enterprises meant that wealthy investors and businessmen were no longer able to manage their own assets unaided and had come to rely on financial professionals to provide expert advice on managing their investments. Among U.S. Trust’s accounts during the 1880s and 1890s were those of William Waldorf Astor, Jay Gould, and Oliver Harriman. The need for professional financial management became even greater with the ratification of the 16th Amendment to the U.S. Constitution in 1913, establishing the federal income tax.
By the time U.S. Trust celebrated its seventy-fifth anniversary in 1928, its trusteed assets totaled more than $1 billion, far exceeding those of any other trust institution. The company’s emphasis on stability served it well during the stock market crash of 1929 and the depression that followed. As controlling stockholder of certain troubled firms, it at times found itself running an insurance company, a machinery maker, a food processor, a molasses company, and a coal mining company. To settle the estate of one customer, it merged three small cement companies it controlled into the General Portland Cement Co. U.S. Trust also provided more personalized service, such as advising clients on schools and careers for their children. It began, for the first time, to advertise in 1958, placing ads in newspaper society pages, The New Yorker, and the programs of the Metropolitan Opera and the New York Philharmonic Society.
By 1962 U.S. Trust held more than $6 billion of assets in its vaults. Its personal trust funds and investment portfolios totaled 8,000, plus endowment funds for such universities and colleges as Princeton, Amherst, Middlebury, Williams, Wellesley, and New York University. It also advised on the management of state pension funds worth another $3 billion. The company earned a record $3.7 million in 1962, of which 60 to 75 percent came from management fees and the remainder from interest on loans and its own investments. In 1959 it marked a new era of prosperity by moving into a new 27-story headquarters building erected on its 45 Wall Street site. Six armored trucks carried $60 billion in cash, securities, bonds, and jewelry into the building.
U.S. Trust was managing more than $8 billion in assets by 1965, of which $2.5 billion was in personal trusts, $2.2 billion in investment management accounts, $1.5 billion in institutional- and pension-fund money, and $1.8 billion in custodian accounts (in which it acted mainly as a bookkeeper). It also held several billion dollars in advisory accounts, to which the company gave investment advice but did not hold the assets in its vaults. It had operating income of $20 million in 1964 and net income of $4.25 million, both records. Eighty-five percent of its gross income came directly or indirectly from trust and investment operations and estate handling. Banking operations, however, were more profitable, and one way the company was drumming up business in this field was to sell investment services to institutions such as other banks and insurance companies, because these services traditionally drew in deposits. By 1977 banking was supplying half of the company’s earnings. In a reorganization, U.S. Trust Co. became a subsidiary of a new parent holding company, U.S. Trust Corp., in 1978.
Travails of the 1970s
The 1970s was not a good decade for stocks, but U.S. Trust’s performance was particularly poor. Whereas the company’s gross income doubled between 1969 and 1976, to $86.2 million, its net income hardly budged. In 1976 three big New York City employee pension funds left U.S. Trust because of what was termed “inadequate performance.” To expand its business, the bank opened offices in Beverly Hills and Palm Beach and also, to tap the Eurodollar lending market, on Grand Cayman Island. But U.S. Trust suffered another embarrassing setback in 1979, when 41 municipal bond certificates worth $397 million vanished from its vault. A big New York City pension fund, which owned the certificates, did not learn of the loss until months later and, although the bonds were nonnegotiable and no loss was suffered, the fund promptly fired the bank as custodian of more than $8 billion in bonds.
As an economy measure, U.S. Trust pulled out of international lending by closing its London and Geneva branches in 1979. To cut costs even further, U.S. Trust cracked down on its own customers in 1980. The “poor relations” (those with assets below $2 million) lost certain services, such as having a bank officer drive to Connecticut to walk the poodle or relying on the company to write and mail checks to the gas and electric companies. On the other hand, U.S. Trust opened an office in a four-story midtown townhouse for clients who did not want to come down to Wall Street to cash a check. Daniel P. Davison, the bank’s new president, made it clear that his goal was to obtain the commercial banking business of its trust customers, especially the 150 families with net worth of $10 million or more.
Restructuring in the 1980s
In 1981 U.S. Trust moved its computer operations center to the East Village to modernize its computer systems and to serve an increasing number of clients. The building also housed the bank’s growing securities processing businesses. In 1984 U.S. Trust formed a new subsidiary, Financial Technologies International, to market and license computer software products and services to financial institutions.
Continuing its restructuring, U.S. Trust announced in 1987 that it would no longer make basic business and real estate loans and would seek buyers for virtually all of its commercial, industrial, and real estate portfolios, valued at about $275 million. Since the bank had steadily disengaged itself from large corporate lending as well, this action restricted its corporate banking activities to serving securities industry and financial institution clients, both noncredit businesses. In 1986 U.S. Trust ranked twentieth among trust companies in assets under management, $14.3 billion, and tenth in trust income, $130.5 million. Trust income accounted for 42.4 percent of the company’s total operating income that year.
Acquisitions and Divestitures of the 1990s
U.S. Trust moved its headquarters from Wall Street in 1989 to a brand new building in midtown, on West 47th Street. It maintained its downtown presence, however, with a new private banking office at 111 Broadway. The bank was also expanding elsewhere, opening new offices for its Florida subsidiary in Naples and Boca Raton in 1992 and 1994, respectively, and for its California subsidiary (founded in 1986 with the acquisition of Summit Management Co., Inc.) in Costa Mesa in 1993. A Dallas-based investment firm, Denker & Goodwin, was acquired in 1989 to form the basis of a full-service Texas trust subsidiary with banking powers. Delafield, Harvey, Tabrell, Inc., an investment advisory firm, was acquired in 1992 and became the company’s New Jersey subsidiary. U.S. Trust of Connecticut, headquartered in Stamford, opened in 1993 and added offices in Greenwich and Hartford in 1996. The 1993 purchase of Capital Trust Corp. paved the way for the creation of U.S. Trust Co. of the Pacific Northwest, with offices in Portland, Oregon.
U.S. Trust acquired Campbell, Cowperthwait & Co., a Manhattan-based investment advisory firm specializing in high-quality growth stocks, in 1992. Three years later it acquired the individual account business of J. & W. Seligman and Co. and purchased J. & W. Seligman Trust Co. In early 1996 U.S. Trust opened a new office in Garden City, Long Island. In 1995 Chase Manhattan Corp. purchased U.S. Trust’s institutional custody, mutual funds servicing, and unit trust businesses for $368.5 million worth of Chase common stock. Chase also agreed to purchase U.S. Trust Corp. of New York, the parent company’s security processing and related back-office business. This sale of about one-third of U.S. Trust’s business allowed the company to focus on its core businesses: asset management, private banking, and fiduciary.
Because of its venerable history U.S. Trust was long regarded as standoffish if not downright snobbish, but in 1987 it reduced its account minimum from between $1 million and $2 million to $250,000 in liquid assets for individually managed new clients. By 1994 the company had more than 30 salespeople, compared with only one in 1980. It offered 25 mutual funds, with a minimum of only $1,000 to open such an account. Those with truly deep pockets could count on the personal service for which U.S. Trust had always been noted, such as a home mortgage in 24 hours.
In 1995 fiduciary and other fees provided 59 percent of U.S. Trust’s total income. Interest on loans accounted for 23 percent; interest on investment securities, ten percent; interest on short-term investments, six percent; and other income, two percent. Of loans of $1.46 billion that year, private banking accounted for 95 percent, of which two-thirds was for residential real estate. Loans to financial institutions accounted for four percent. Deposits averaged $2.68 billion during the year, of which 56 percent was interest bearing. The company’s long-term debt was $26.5 million in March 1996.
Campbell, Cowperthwait & Co., Inc.; CTC Consulting Inc.; Mutual Funds Service Co.; UST Fiduciary Services, Ltd.; UST Securities Corp.; U.S. Trust Co. of California, N.A.; U.S. Trust Co. of Connecticut; U.S. Trust Co. of Florida Savings Bank; U.S. Trust Co. International Corp.; U.S. Trust Co. of New Jersey; U.S. Trust Co. of New York (Grand Cayman), Ltd.; U.S. Trust Company of the Pacific Northwest; U.S. Trust Co. of Texas, N.A.; U.S. Trust Financial Services, Inc.
Principal Operating Units
Investments; Personal Investment; Fixed Income Investments.
“Banker to the Rich,” Forbes, April 1, 1963, p. 40.
Bennett, Robert A., “Brahman’s Banker,” New York Times, January 20, 1980, Sec. 3, p. 9.
“Chasing the Coupon Clippers,” Forbes, March 1, 1977, pp. 56-57.
“Compound Trouble for U.S. Trust,” Business Week, January 28, 1980, p. 42.
Crowley, Lyle, “Inside the Private World of Private Bankers,” Bankers Monthly, November 1990, pp. 27-28.
Hertzberg, Daniel, “Tranquil Aura at U.S. Trust Obscures Vexing Problems for Old-Line Banker,” Wall Street Journal, October 26, 1979, p. 18.
“Making Risk-Taking Pay at U.S. Trust,” Business Week, March 20, 1965, pp. 138-140, 144, 146.
Schifrin, Matthew, “Affirmative Action,” Forbes, January 3, 1994, pp. 58, 62.
Sudo, Philip T., “U.S. Trust Co. To Sell Portfolio of Business, Real Estate Loans,” American Banker, July 14, 1987, pp. 1, 30.
U.S. Trust: A History of Growth with a Commitment to Personal Service, New York: U.S. Trust Corp., 1996.
“U.S. Trust Centennial,” Newsweek, April 20, 1953, pp. 80-81.