U.S. Bancorp goes after the deepest of pockets

U.S. Bancorp has built its brand on the idea that it can be many things to all people.

Now, the nation's fifth-largest bank will see if it can lure business from the super-rich by creating a boutique unit focused exclusively on investors with assets of $25 million or more. The new unit, to be known as Ascent Private Capital Management, will open offices in Minneapolis and Denver by the end of the year.

Wooing the ultra-rich has become a popular sport for the nation's large banks. Faced with lackluster growth in their core business of making loans, banks are reaching out to high-net-worth people to improve profit margins and drum up future business.

U.S. Bancorp will be competing with the likes of Wells Fargo, J.P. Morgan Chase and Bank of America, which already have established wealth management arms that cater to the super-rich. All are chasing the same market: the more than 36,000 people in North America who have investable assets of $25 million or more.

"The competition is intense, because the overall pie is quite small," said Jennifer Thompson, a financial analyst at Portales Partners in New York.

The bank is trying to differentiate itself in this crowded marketplace by emphasizing what it calls "wealth impact" services. Instead of just focusing on helping rich people grow their assets, the new unit will give them sophisticated advice on how to "make a positive impact in the world," said Michael Cole, president of Ascent Private Capital, and formerly led Wells Fargo's family wealth group.

This is not new territory for U.S. Bancorp. The bank already manages money for the ultra-wealthy through its wealth management group, which has about $60 billion in assets. And about one-third of the assets within this division are classified as coming from these ultra high-net worth investors with assets of $25 million or more.

The bank hopes that, by engaging rich families in broader discussions about their values and goals, the new unit will help prevent the loss of wealth that often occurs as assets are transferred from one generation to the next. About 70 percent of all estates fail to transfer successfully to the next generation, according to a study by the Williams Group of Stockton, Calif. The primary reasons are poor communication and lack of trust, rather than bad advice or financial mismanagement, according to the study, which included interviews with 3,250 families over four decades.

"Most of our competitors are spending 95 percent of their resources on traditional wealth management ... that only attacks 15 percent of the reasons that clients are not successful" in passing wealth from one generation to the next, Cole said.

It remains to be seen whether the U.S. Bancorp's more holistic approach will work with the super-rich, who often prefer to hire their own professionals rather than turn to bankers.

"The problem with [the banks] is, they have considerable turnover, so there is no consistency in who [clients] are dealing with," said David Koch, chief investment strategist at Minneapolis-based Windsor Financial Group, which manages about $1.7 billion in assets. "Their sheer size and mentality can be a barrier."

But for U.S. Bancorp, the downside risk is small, said Jon Arfstrom, a bank analyst at RBC Capital Markets in Minneapolis. It will be relatively inexpensive for U.S. Bancorp to establish the unit and market the brand, given that the bank already has a wealth management unit. And it could enable the bank to retain commercial customers after they sell their businesses and become multi-millionaires.