NEW YORK — Peter Scaturro’s impending departure as chief executive of U.S. Trust has left Bank of America Corp., the venerable wealth manager’s prospective new owner, with a big mess on its hands.
“It’s a huge public relations problem,” said Russell Reynolds Jr., chairman and chief executive of Directorship Search Group, an executive search company in Greenwich, Conn.
The move throws into question the details of Charlotte, N.C.-based B of A’s $3.3 billion deal to buy New York-based U.S. Trust Corp. from San Francisco-based
Charles Schwab Corp. in a few months and whether B of A will retain the U.S. Trust brand. B of A also must scramble to find a successor to the high-profile and dynamic 47-year-old Mr. Scaturro, and make sure other U.S. Trust executives, relationship managers and clients don’t follow him out the door.
What’s more, U.S. Trust’s rivals in the ultrahigh-net-worth wealth management market are licking their chops at the opportunity to pick off wealthy clients and experienced executives.
Rivals ready to pounce
“It’s a golden opportunity for us,” said one competitor, who asked not to be identified.
“There will be opportunities for competitors to seize on potential dissatisfaction of U.S. Trust customers as they acclimate themselves to a world under B of A, which for many will not be a friendly place,” agreed Tim Kochis, chief executive of wealth management firm Kochis Fitz Tracy Fitzhugh & Gott Inc. in San Francisco.
The simmering culture clash between Mr. Scaturro and his would-be superior at B of A, Brian Moynihan, president of the banking giant’s global wealth and investment management division, came to a boil last week in a front-page story in The Wall Street Journal.
According to the story, Mr. Scaturro, an advocate of giving high-net-worth customers special treatment, opposed B of A’s emphasis on scale and centralization, and wanted to report directly to Kenneth Lewis, the bank’s chairman and chief executive, and not Mr. Moynihan.
The story, with eyebrow-raising details such as Mr. Moynihan’s purported suggestion to charge U.S. Trust clients ATM fees, was seen widely as a poke in the eye at B of A.
Such information was particularly damaging, said a rival wealth manager, because it played on the worst fears of U.S. Trust’s wealthy clients — that they would be “retail-ized” and lose their special status.
“People who have been on the receiving end of good service are really used to a lot of hand-holding,” Mr. Reynolds said.
U.S. Trust insiders say B of A indeed is determined to integrate U.S. Trust fully, a strategy that puzzles others in the industry.
“The ultrahigh-net-worth client is seeking a customized, boutique experience,” said Jamie McLaughlin, New York-based managing director for Lydian Wealth Management Co. LLC, a Rockville, Md.-based subsidiary of Palm Beach, Fla.-based Lydian Trust Co. “While post-merger integration may be a rational business objective for business managers, it is usually dilutive of this experience.”
B of A’s integration strategy “runs the risk of ruining a beautiful brand,” according to Elizabeth Nesvold, managing director of New York-based Cambridge International Partners Inc.
“The combined organization will deliver the best of U.S. Trust and the Bank of America to our wealthy clients,” said John Yiannacopoulos, a spokesman for B of A.
Mr. Scaturro’s defense of the U.S. Trust brand’s identity and perks — and his pending exit — “clearly demonstrates how difficult it is to integrate players that originate on different ends of the wealth spectrum,” said Alois Pirker, senior analyst with Aite Group LLC, a Boston-based financial services research firm.
Although Ms. Nesvold and others think that it is unlikely that B of A’s purchase will not be completed, the investment banker said that Mr. Scaturro’s departure this summer may affect the purchase price.
“All transaction work remains on schedule,” Mr. Yiannacopoulos said.
Schwab declined to respond to questions for this story.
Mr. Scaturro is set to leave U.S. Trust within a few months, if not sooner, and initial speculation on his successor has centered on Frances Aldrich Sevilla-Sacasa, president of U.S. Trust.
But that appointment is unlikely to happen, said industry sources, citing her lack of a constituency within U.S. Trust and B of A, and her close identification with Mr. Scaturro, with whom she worked at New York-based Citigroup Inc.’s global private bank.
B of A is more likely to consider bank veterans Allan Rappaport, New York-based head of Family Wealth Advisors, or Jane Magpiong, president of The Private Bank in Boston, they said.
No matter who heads the company, preventing an exodus of employees and clients will be a major challenge.
“Recruiters will be all over the place,” Mr. Reynolds said.
Noting that experienced wealth managers were highly sought after in the fiercely competitive ultrahigh-net-worth market, B of A’s ability to retain U.S. Trust veterans “depends on what kind of compensation structure they put in place,” according to Mr. Pirker.
U.S. Trust’s relationship managers would be especially prized by rivals, Ms. Nesvold said. Not only are they in high demand and short supply, but loyal clients may follow them to a new firm, she said.
Despite the current uncertainty, U.S. Trust and Bank of America still could prove to be a winning combination, industry observers said.
“There are enormous possibilities here,” said Michael Kostoff, executive director, financial services, for the Washington-based Corporate Executive Board Co. “As far as potential, the sky’s the limit. The challenge is to make it work and find the right leader.”
A successful meshing of the two companies “could be an extremely powerful combination,” said Doug Regan, an executive vice president of Northern Trust Corp. in Chicago and president of its wealth management group.
“I continue to believe these firms will be formidable,” Mr. McLaughlin said. “They have scale, capital and an unrivaled national footprint. To successfully exploit this opportunity, however, they need to separately brand. And what better exemplar is there in the business than the U.S. Trust franchise. While tattered, it’s still intact.”
