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Bank of America, BlackRock Deal: New Model?

The divestiture could be the start of an industrywide exodus from investment management.
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Bank of America

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may not be the only company considering cutting its losses in the asset management business.

Other banks, caught between increased regulatory oversight and declining profit margins, will take a hard look at the investment management businesses they built during the mutual fund boom of the 1990s.

"Banks are starting to divest some of their non-core businesses and getting back to their roots," said Carla Zilka, principal adviser at NexGen Advisors. "You are likely going to see this more from commercial lenders."

Bank of America

was reducing its 34% stake in asset manager


(BLK) - Get BlackRock Inc. Report


But Bank of America may be only the first of a number of banks that will turn away from the investment management business.

"Now that banks are essentially regulated as a utility, they will need to review their asset managers to determine whether or not those operations fit into the future," said Ben Phillips, a partner with the consulting firm CaseyQuirk in New York.

Banks are currently under pressure to either curtail or restructure their investment management operations as a result of new regulations -- including the Dodd-Frank financial services reform legislation and Basel III capital requirements -- which prevents banks from holding large stakes in other companies and places restrictions on executive pay.

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Phillips argues that regulatory changes will force banks to consider several options, including trimming existing ownership stakes, creating incentive structures that do not run afoul of regulation or divesting the businesses completely. "The question is not only if they hold them, but how they hold them," he said.

An obvious choice to review investment management operations include


(PNC) - Get PNC Financial Services Group Inc. (The) Report

, according to Zilka. "It would absolutely make sense for PNC to consider this

a sale of its stake," said Zilka.

PNC currently owns a third of BlackRock's common equity, according to spokesperson Fred Solomon. PNC would not comment on any rumors concerning the sale of its stake.

Beyond just the regulatory worries, banks have become increasingly skeptical of investment management as a business. Phillips argues that fee income from fund managers has become less important to banks as market volatility skyrocketed during the financial crisis and cut into margins. Additionally, banks have come to the conclusion that as baby boomers age and begin to withdraw their money, banks will no longer have the ability to add assets and build the scale necessary compete.

If Bank of America and PNC do decide to sell their stakes, possible bidders could be


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or other foreign banks trying to penetrate the U.S. market, Zilka said. Potential bidders might also include

Goldman Sachs

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or, more likely,

JPMorgan Chase

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, "because it is more agile."

"If it is a strategic partner, the stake is worth a lot more than if it is independent sale," Zilka added. "Of course, the value will depend on how quickly Bank of America wants to get the stake off its plate."


Written by Maria Woehr in New York