Unsatisfactory profits in its corporate trust division led NationsBank Corp. to announce yesterday that it will sell the operation, which brought in $47 million in revenues last year.
The business, headquartered in Atlanta, handles largely administrative services such as bond trustee, registrar, paying agent and escrow services. Its clients are more than 71,500 businesses throughout the United States.
"The increasingly competitive nature of the corporate trust industry is leading to consolidation among the major players," the company said in a statement. The NationsBank division, operating in nine states and the District of Columbia, has been unable to reach its 15 percent return on equity target for the business, which employs 370 people.
"To meet those targets, we would be forced to build volume through acquisition, and this is not an attractive option for us," said James B. Sommers, president of NationsBank Trust.
Mr. Sommers said NationsBank will focus more of its resources on asset and investment management and retirement services. "These are areas where customer demand is rising dramatically and we anticipate steep growth in volume and profitability in these businesses," he said in a statement.
NationsBank Trust, which includes the corporate trust division, is one of the 10 biggest trust banks in the United States, with $163.6 billion in assets under administration as of Dec. 31, 1994, the company said, and revenues last year of $435 million. The corporate trust unit administers $167 billion of debt securities.
"Margins in corporate trust are not particularly wide, because corporate trust is a business that depends on scale," said Merrill Ross, an analyst with Wheat, First, Butcher & Singer in Richmond, Va.
"I think that all the banks right now, particularly ones this size, are examining the businesses that can be pruned in order to raise capital to invest in the ones where they find the returns are better," Ms. Ross said.
NationsBank, for instance, has made a big commitment to building its mortgage servicing business. Last month it announced two major acquisitions within a week: the $25 billion mortgage servicing business of Cleveland-based Keycorp; and a $10 billion portfolio of servicing rights from Source One Mortgage Services Corp., of Farmington Hills, Mich.
Those deals, once completed, will make NationsBank the number five mortgage servicer in the nation, up from 15th, with a $75 billion portfolio.
The sale of the corporate trust business could bring the company between $70 million and $90 million, Ms. Ross estimated. Last year NationsBank, America's fourth-largest banking company, earned $1.7 billion.