In what it says is an effort to attract national money, one of Washington's largest banks recently spun off part of its trust division and formed a separate company to manage institutional money.
ASB Capital Management Inc. opened its doors after American Security Corp., the parent company of American Security Bank, decided to separate the bank's personal and institutional investors. ASB Capital Management will manage mostly tax-exempt, pension fund monies.
Under this new arrangement, $2.2 billion in institutional money controlled by American Security Bank was transferred to ASB Capital Management. It has added several new accounts as well since it began operations, said bank officials.
Because of the amount of money it already handles, ASB Capital Management ranks among the top 30 or 40 money managers in the nation, said an official for the Baltimore-based investment firm T. Rowe Price.
American Security Corp. is a pioneer among commercial bankers in taking this step. It is the first bank in the Washington area to establish an investment subsidiary, although Chase Manhattan Bank set up Chase Investors Management Inc. to manage tax-exempt institutional monies more than 10 years ago.
"We have an outstanding investment record and we are of the opinion we can go national and this is the vehicle to do so with," said Walter R. Fatzinger Jr., senior vice president and trust officer at American Security Bank.
As a separate entity, ASB Capital Management hopes to capitalize on the escalating pension fund market while overcoming the general predisposition of pension fund consultants not to recommend banks as money managers, bank officials said.
Pension fund consultants were described by bank officials as having the perception that bank trust divisions are less capable of handling pension fund monies because they cannot pay salaries high enough to retain the best investment people.
"Setting up ASB Capital Management, as a business decision, was justified by the across-the-board stigma that was costing us business," Fatzinger said, although "there's very little different internally to our prior operation."
"You don't make the list of those being considered as money managers . . . unless you're in this type of vehicle," added W. Jarvis Moody, chairman and chief executive officer of American Security Corp.
The move, however, was not just a symbolic separation from the bank. Beginning in 1984, ASB Capital Management will initiate an incentive program for its investment advisors.
"With this incentive compensation program, we'll be able to retain higher quality investment officials that we could not obtain in the bank trust department," Fatzinger said.
Moody said American Security expects ASB Capital Management to "grow like a rocket." The company has set a goal of a 15 percent annual growth rate in both revenues and money managed for ASB Capital Management, Fatzinger said.
Although conceding that bank trust departments do suffer from an image problem, a local pension fund consultant said his firm does not discount banks from its list of possible money managers for pension funds. "It is difficult for a bank within the usual compensation structure to retain the very best people, but in the past, we have recommended bank trust divisions," said Lewis Hunter of Cambridge Associates.
Anticipated changes in banking regulations also encouraged American Security to make this move to an investment subsidiary. "We strongly feel the Glass-Stegall Act establishing limits for the banking industry will be amended. We wanted to position ourselves for that change," said James F. Rogers, president of American Security Corp.
Because ASB Capital Management is owned by a company that also owns a bank, it is subject to the same regulations that apply to the bank, American Security officals said. They anticipate that changes in the law may allow banks to market mutual funds and underwrite securities. They also believe banks will be required to establish investment subsidiaries to perform these services. ASB Capital Management, therefore, is seen as giving American Security a jump on its competitors.
National Bank of Virginia and Riggs National Bank, both of which have larger assets than American Security, would not comment on the new subsidiary.
Unlike a brokerage house, the "main emphasis" of ASB Capital Management will be on providing investment advice to its clients, Moody said. Its competition consists of other investment firms such as T. Rowe Price and bank trust departments, said Fatzinger.
"There's clearly a trend to set up wholly owned subsidiaries to more directly address the problem," of salary discrepancies between banks and investment firms, said Eugene M. Waldron, vice president for T. Rowe Price.
Because of this personnel problem, "banks have actually lost market share" in pension funds, Waldron said.
ASB Capital Management currently has Peoples Drug Stores Inc., Woodward & Lothrop Inc. and the D.C. Retirement Board among its customers. Their money previously was managed by American Security Bank.
"They did a very satisfactory job for us in '81 and '82," said D.C. Retirement Board Chairman Frank Higgins. He said the board plans to continue its previous arrangements with the bank with ASB Capital Management. American Security Bank managed the board's short-term pension fund money--about $135 million--and acted as master trustee for the remainder of the fund, Higgins said.