Corporate Valuation, Investment Management

January 11, 2017

Trust Banks Thrive in 2016 on Steepening Yield Curve

All three publicly traded trust banks (BNY Mellon, State Street, and Northern Trust) outperformed the market in 2016, continuing their upward trajectory over the last few years but still lagging the broader indices since the financial crisis of 2008 and 2009.  Placing this recent comeback in its historical context reveals the headwinds these businesses have been facing in a low interest rate environment that has significantly compressed their money market fees and yields on fixed income investments.  Their recent success may therefore be more indicative of a reversion to mean valuation levels following years of depressed performance rather than a sudden surge of investor optimism regarding future prospects.  Further, pricing improvements for this group appear to be more relative to an improved banking environment than a change in circumstances for trust services.

trust-bank-returns-2016 Still, in recent quarters, most trust bank stocks outperformed other classes of asset managers like mutual funds and alternative investors that endured a rocky 2016 as passive products and indexing strategies continued to gain ground on active management.  The steepening yield curve portends higher NIM spreads and reinvestment income, and the market has responded accordingly – our trust bank index gained 20% for the year, besting the broader indices and all other classes of asset managers. asset-manager-perf-2016 So have these securities gone from oversold to overbought?  A quick glance at year-end pricing shows the group valued at 15x (forward and trailing) earnings with the rest of the market closer to 25x, so that alone would certainly suggest they aren’t yet too aggressively priced.  Still, the three companies are all trading within 5% of their 52 week high (and all-time high for that matter), so it’s hard to say they’re really all that cheap either. comp-trust-banks-12-31-16 So if you’re looking for mean reversion within the sector then alternative asset managers might be your best bet, though we’d be remiss not to point out the inherent risks associated with some of these businesses.

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The RIA Valuation Insights Blog presents a weekly update on issues important to the Asset Management Industry. Follow us on Twitter @RIA_Mercer.

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Mercer Capital to Sponsor The Florida Bar’s 44th Annual Attorney/Trust Officer Liaison Conference
Mercer Capital to Sponsor The Florida Bar’s 44th Annual Attorney/Trust Officer Liaison Conference
Mercer Capital is pleased to sponsor The Florida Bar’s 44th Annual Attorney/Trust Officer Liaison Conference, taking place July 30 to August 1, 2026, at The Breakers in Palm Beach. Matthew R. Crow, CFA, ASA, and Thomas C. Insalaco, CFA, ASA, will represent the firm at the conference.Presented by The Real Property, Probate and Trust Law Section of The Florida Bar, the annual conference brings together attorneys, trust officers, and other professionals for focused education on current trust and estate issues. The 2026 program includes sessions on trustee discharge, fiduciary accounting, undue influence, legislative updates, technology and financial exploitation, and trust and estate case law.Matt Crow is the CEO of Mercer Capital and leads the firm’s Investment Management Industry team. He works with RIAs, independent trust companies, broker-dealers, and investment consulting firms on valuation matters related to corporate planning and reorganization, transactions, employee stock ownership plans, tax issues, and valuations of intangible assets, options, and assets subject to contractual restrictions. He is a regular contributor to Mercer Capital’s RIA Valuation Insights Blog.Tom Insalaco is a Senior Vice President and a member of Mercer Capital’s Gift, Estate, and Income Tax Planning and Compliance practice group. Since 2008, he has provided valuation services across a broad range of industries and matters, including gift and estate tax, business succession and exit planning, and buy-sell agreements.Mercer Capital works with owners, fiduciaries, and professional advisors on valuation and advisory matters involving trusts, estates, tax planning, and disputes. The firm is pleased to support programs that help professionals navigate the financial issues that arise in complex estate and trust matters.Mercer Capital looks forward to connecting with attendees in Palm Beach and participating in this year’s conference. Visit the conference’s website to learn more: https://member.floridabar.org/s/lt-event?id=a1RWQ00000RcEFJ2A3.
Organic Growth Is Becoming the RIA Valuation Differentiator
Organic Growth Is Becoming the RIA Valuation Differentiator
Organic growth is becoming a critical valuation differentiator for RIAs as buyers look beyond market-driven AUM gains to assess whether growth is repeatable, measurable, and transferable. Firms with diversified business development channels and documented processes may be better positioned to support credible forecasts and defend premium valuations.
Independent Trust Companies Benefit from Durable Industry Tailwinds
Independent Trust Companies Benefit from Durable Industry Tailwinds
Independent trust companies continue to benefit from expanding wealth, intergenerational transfers, recurring fiduciary revenue, and growing demand for sophisticated advisory services. Strategic investments and broad transaction interest further demonstrate the industry’s long-term growth potential.

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