Lydian Trust sharpens its focus in Florida

SAN FRANCISCO — In selling one of its subsidiaries to a California bank, Lydian Trust Co. is preparing to bolster its presence on its home turf. The Palm Beach, Fla.-based bank holding company plans to open as many as 15 wealth management offices across Florida by 2009. The cash needed for the dramatic expansion of its Lydian Bank and Trust subsidiary will come from the recently announced sale of Rockville, Md.-based Lydian Wealth Management, which manages $7.5 billion, to City National Corp. of Los Angeles. Terms of the deal weren’t disclosed. Two big factors drove Lydian Trust’s decision to focus on Florida, according to company executives. First, the Sunshine State has a relatively high concentration of retirees with more than $25 million in retirement assets. In addition, of the top 25 Florida-based financial institutions, 12 have been sold since 2004 or are under agreement to be sold, according to Lydian Trust. “The beauty is we’re Florida based,” and customers are hungry to do business with a quality local player, said Andrew Putterman, president and chief executive of Fortigent, another Rockville-based Lydian Trust subsidiary. Local loyalties aside, Florida residents are far from underserved by wealth managers. “[Lydian Bank and Trust] is a very high-quality firm, but I wouldn’t agree they can come into Florida and fill this [presumed] enormous void,” said Richard Steinberg, president of Boca Raton, Fla.-based Steinberg Global Asset Management Ltd., which manages $490 million. “There is incredible customer loyalty [in Florida].” Bessemer Trust and U.S. Trust Corp., both of New York, Mellon Financial Corp. of Pittsburgh, Northern Trust Corp. of Chicago and SunTrust Banks Inc. of Atlanta all are formidable competitors from the banking sector, Mr. Steinberg said. That’s not to mention the many independent advisers and Wall Street brokers that also are competing for Florida’s ultra-affluent, he added. Lydian Bank and Trust is aware of the hurdles it faces — particularly because some 70 banks are represented within 300 yards of its headquarters in Palm Beach, according to president and chief executive James Meany. “It’s very tough, but it’s not tough with the right people who want more than a job,” he said. Indeed, recruiting is key to Lydian Trust’s strategy. In fact, the company won’t open a new office without staffing it with someone with their own customer base, Mr. Meany added. He hopes to lure those recruits by offering them autonomy along with the chance to acquire an ownership stake in privately held Lydian Trust. Lydian’s strategy of growth by headhunting in Florida appears to imitate what New York-based Signature Bank is attempting in its home state, according to Jon D. Holtaway, managing director of Danielson Capital LLC in Vienna, Va. But the strategy has its pitfalls, he said. “That’s expensive, because these [high level] people don’t come cheap,” Mr. Holtaway said. “The issue is how you pay these people, and how does that affect your operating margins?” he said. “You’re looking for synergy over many years.” Maybe so. But so far, the strategy has worked. Lydian’s North Palm Beach, Fla., office, for example, recently was opened by a trust officer from New York-based Citigroup Inc. who had a big local following. Meanwhile, the company’s newly opened office in Coral Gables, Fla., is being manned by a team of trust officers who defected from Northern Trust. Lydian Bank and Trust’s office in Boca Raton soon will be run by the president of a large regional bank, and plans for an office in Sarasota, Fla., will follow a similar script, Mr. Meany said. Lydian Bank and Trust already has $15 billion of assets under management. But such a strategy so dependent on taking away employees and customers from competitors may carry its own risks, Mr. Steinberg said. “I think they may be underestimating the litigation risk,” he said. Lydian Trust is sensitive to this peril, Mr. Meany said. “It depends on each executive’s” arrangement with their employ- ers, he said. “Many of them don’t have non-solicit, non-compete contracts.”