A hotshot manager, Mercantile part ways

THE BALTIMORE SUN

To some outside observers, the hiring of Wallace Mathai-Davis to head up Mercantile Bankshares Corp.'s wealth management division seemed ill-fated almost from the start.

The former Offitbank executive was perceived by many as a brash Wall Streeter who bought a $3.5 million house, wore expensive tailored suits and craved attention. His style seemed to contrast sharply with Mercantile's image as the quiet, stodgy caretaker of Baltimore's old money.

A little more than a year into his four-year contract, Mathai-Davis is out, leaving analysts and investors scratching for answers as to what went wrong. The company has remained silent on the reasons for his abrupt departure, fueling rumors of a divide between the bank's old guard and the high-profile industry veteran who was brought in to make the bank a national player in the lucrative wealth management business.

Edward J. "Ned" Kelly III, who took over as Mercantile's chief executive two year ago, dismisses speculation of a culture clash and says the wealth management division remains on target to double its revenue over the next two years.

"I think the team continues to believe in what it is we're trying to do," he said. "I think I've been able to state unequivocally and unambiguously that [Mathai-Davis' departure] has no impact on it."

But others close to the bank indicated that differences in style, rather than performance, were the central issue. One source said Mathai-Davis didn't give the bank's old-money clients the kind of personal attention they were accustomed to. Many of those clients rely heavily on such relationships, often consulting with their trust officer before making major decisions.

Kelly said the buildup of the wealth-management business has been slowed in the face of a difficult economy and continued hesitation among prospective clients to switch money managers in the midst of a volatile stock market. Within two years, he said, the merits of his strategy will begin to show on the bank's balance sheet.

Analysts agree with that assessment, saying the shake-up will have little impact on wealth-management operations. But many were surprised by Mathai-Davis' sudden exit and the bank's decision not to say anything beyond last week's brief announcement.

Mathai-Davis did not return phone calls to his home in Green Spring Valley this week.

"Anytime you see a high-level person like that step down, it certainly raises a flag," said Matthew C. Peake, an analyst with Davenport & Co. in Richmond, Va. "But I didn't see it as a big event either way. ... I think a lot of the changes they planned on making they've already made."

Hiring spree

Mathai-Davis' arrival marked the beginning of a hiring spree as the bank went in search of the high-powered talent to bolster the wealth management operations, which had stagnated after years of neglect. Those expenses have eaten into the unit's revenue, which Kelly said accounts for 5 percent to 10 percent of the bank's total.

Among the hires was John J. Pileggi, a mutual funds veteran who became chief executive officer of the bank's Mercantile Capital Advisors Inc. and Hopkins Plaza Securities Inc. units. Sources close to the bank say he is a likely candidate to replace Mathai-Davis. Mercantile officials will say only that the replacement will come from within the bank.

About 30 lose jobs

Pileggi was joined last year by Margaret Preston, who left Deutsche Bank AG to head Mercantile's private wealth management group; Kevin McCreadie, a former partner with Brown Investment Advisory & Trust; and David Meyer, a former J.P. Morgan executive.

The personnel investments were paid for in part by a reorganization that resulted in about 30 employees losing their jobs in June 2002. The layoffs were part of a plan to change how the bank serves its high-value clients.

During the past year, the bank has also invested in new technology and made a series of acquisitions to expand the wealth management unit's base.

The company bought a 19.9 percent stake in Winston Partners, a McLean, Va., firm that operates hedge-fund products and invests in private companies.

In December, the company formed a strategic alliance with Geneos Wealth Management Inc., an independent broker-dealer based in Denver, and in January it announced the acquisition of Boyd Watterson Asset Management LLC of Cleveland.

Industry analysts credit Mathai-Davis for hiring strong talent and improving the wealth management unit's infrastructure. But even without him, Mercantile remains a strong contender in the competition to attract wealthy individual investors and endowments, despite formidable competition in Baltimore and nationwide.

"They're doing everything they should do," said Henry J. Coffey Jr., an analyst with Ferris, Baker Watts Inc. "In three to four years, wealth management will go from a revenue contribution of around 10 percent to 15 or 20 percent per year."

Gary B. Townsend, an analyst with Friedman, Billings, Ramsey & Co. Inc., said the bank's limited success to date in boosting its wealth management business is more a reflection of a difficult economy than signs of failure on the part of management.

"It was a difficult time to show all of the benefits of the efforts being taken," Townsend said.

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