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Profit Margin Volatility P.I.E. Assets Fiduciary Earnings & Expenses Trusts Trust Regulatory News Bank A.M. Publishing Bernard Garbo Profit Margin Volatility and P.I.E.

(Dec. 17, 2012 --Chicago, IL) -- Profit margins at trust institutions are surprisingly volatile, according to Fiduciary Earnings & Expenses 2012.

Until 2011, average industry profit margins for independent trust companies were increasing at a slow but steady rate over the last six years, presenting the picture of an industry that was effectively managing costs year over year. Average industry profit margins at bank trust divisions over the same time period were very volatile, leading to speculation that banks might not be allocating all overhead to their trust divisions.

When comparing peer group averages, FEE says, the picture emerges of an industry with profit margins that can fluctuate significantly. The particular product lines an institution chooses to focus on appear to be less of a determining factor of its profitability than does the number of product lines it opts to focus on, according to FEE. The data suggest this is the case regardless of an institution's size or type.

Among independents, the highest profit margins are generated by those focusing on just one or two product lines.

Among bank trust divisions, those generating higher profit margins generally focus on three or fewer product lines.

Many of the most profitable independents focus on traditional asset lines: personal trusts, investment management agencies, and employee benefit trusts, or P.I.E.

Healthy P.I.E.

P.I.E. assets generate 48 percent of the trust industry's gross revenues but account for only 13 percent of the industry's total assets, according to FEE 2012. Independent trust companies have significantly greater percentages of P.I.E. assets and revenues. Their P.I.E. assets generate a hefty 83 percent of trust-related gross revenues, account- ing for 60 percent of assets.

Among national trust companies, P.I.E. assets generate 64 percent of gross revenues, accounting for 68 percent of assets.

Bank trust departments better reflect industry assets, with P.I.E. assets generating 46 percent of gross revenues, accounting for 12 percent of assets.

On average, reports FEE, the larger the institution, the smaller its share of P.I.E. assets relative to total assets.

Dollar for dollar, P.I.E. assets generate on average from 6 to 10 times as much revenue as custody assets, accord to FEE 2012. This nonweighted average reflects performance by large institutions. When weighted, the factor, for independents, drops to 4 times more custody assets than P.I.E. assets to generate $1 of gross revenue. Bank trust departments report a 6 to 1 ratio; national trust companies report the worst, at 14 to 1.

For more information on FEE 2012 go to

No statement in this issue is offered as or should be construed as legal opinion or advice or as an indicator of future performance.
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