Wilmington Trust Corporation

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Wilmington Trust Corporation

Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
U.S.A.
(302) 651-1000
Fax: (302) 651-8010
(800) 441-7120

Public Company
Incorporated: 1901 as Delaware Guarantee and Trust Co.
Employees: 2,418
Total Assets: $5.56 billion (1996)
Stock Exchanges: NASDAQ
Ticker Symbols: WILM
SICs: 6712 Bank Holding Companies

Wilmington Trust Corporation is the holding company for the Wilmington Trust Company and its subsidiaries. It is the largest banking company in Delaware, with a market share of more than 40 percent in that state. Wilmington Trust has branches all across Delaware, several in the neighboring states of Pennsylvania and Maryland, and one branch in Palm Beach, Florida. The core of Wilmington Trust’s business long has been personal trust management, and the bank ranks as the eighth largest nationwide in terms of the personal trust assets it manages. The bank also offers a full range of other banking and investment services. It makes business and consumer loans, manages institutional investments, and runs its own mutual funds group, called the Rodney Square Funds. Wilmington Trust also is one of the nation’s largest retailers of precious metals. It sells and purchases metals and stores gold and silver bullion, bars and coins.

Early History

Wilmington Trust (under the name Delaware Guarantee and Trust Co.) was incorporated in Delaware in 1901 by members of the du Pont family. The du Ponts held one of the oldest and wealthiest U.S. manufacturing fortunes. éleuthere Irenee du Pont de Nemours, his company’s founder, emigrated from France to the United States in 1797 and subsequently built a gunpowder plant on the banks of Delaware’s Brandy wine River. Du Font’s company grew to be the largest industry in Wilmington and by the early 1900s was one of the largest corporations in the entire United States. Its assets at that time were believed to be worth around $24 million, a stupendous amount in the economy of that era. The Delaware Guarantee and Trust Co. was founded to handle the banking needs of the growing Du Pont company. The bank changed its name to Wilmington Trust Company in 1903. Wilmington Trust was deeply tied to the du Pont family and their company throughout its early years. Du Pont family members sat on Wilmington Trust’s board, and they maintained million dollar checking accounts and even larger trust funds there. As a result Wilmington Trust, which otherwise might have been a typical small-town bank, ranked near the top of banks nationwide for assets.

Leader in Trusts in the 1960s and 1970s

Wilmington Trust extended its influence across the state of Delaware beginning in the 1940s, when it began acquiring smaller banks. It bought up the Union National Bank of Wilmington in 1943 and the Industrial Trust Co. of Wilmington in 1955. It bought up banks in the nearby towns of Newport, Claymont, and Newark between 1943 and 1949 and acquired three other area banks in 1959. It branched out into other businesses in the 1960s and 1970s, forming a subsidiary, the Brandy wine Insurance Agency, Inc., in 1964 and acquiring a travel agency in 1974. The bank continued to hold massive amounts of du Pont family fortune, and the Du Pont company also did the bulk of its banking there. Trust handling was the bank’s preeminent business. By 1969 Wilmington had the twelfth largest trust department in the United States, with trust assets worth $5.7 billion. Wilmington handled the fortunes of many famously wealthy clients, attracting them through national advertising. The bank stated its expertise in dealing with personal wealth in its publicity. By 1969 Wilmington Trust derived 18 percent of its total income from its trust department, a higher percentage even than the giant Morgan Guaranty Trust in New York, the nation’s leader in trust assets.

Because of its unique position as the bank of such a wealthy family, there were ways in which Wilmington Trust did not operate like other banks. It derived very little of its income from loans, either to homeowners or to small businesses. The bank kept a larger percentage of its assets on hand than did other Delaware banks, because it needed money to cover the large demand accounts of its wealthy clients. Whereas in 1969 other Delaware banks kept only between eight and 15 percent of their total assets in cash and short-term notes, Wilmington Trust had 24 percent of its total assets on hand. This meant that there were millions of dollars Wilmington Trust was unable or unwilling to invest or loan out. Because of its need to have large amounts of cash available, it did not put as much of its money to work as did other banks.

More than half of Wilmington Trust’s board of directors were du Pont family members in the early 1970s, and this also may have led to operations different from those typical at other banks. For example, in the spectacular bankruptcy of Lammot du Pont Cope-land Jr. in 1970, some accused the bank’s board of protecting its client with secrecy and not alerting other creditors to Copeland’s looming financial disaster. Copeland Jr. ran a holding company, the Winthrop Lawrence Corporation, which amassed a small business empire in the 1960s. He or his company owned a string of California newspapers, a toy company, a van line, and college dormitories at one point. But towering debts led Copeland Jr. to declare bankruptcy in 1970, in one of the biggest personal bankruptcy cases ever up to that time. When Copeland Jr. defaulted on a $3.4 million loan from Wilmington Trust, the bank’s judgment against him was carried out quite inconspicuously. Copeland Jr. was able to get a $1 million loan from a Swiss bank a month after Wilmington Trust published its judgment against him for default. Wilmington Trust also made little effort to collect the money owed it by Copeland Jr. Most of the loan, an amount of $3 million, had been guaranteed by his father, Lammot du Pont Copeland Sr., who happened to be a director of Wilmington Trust. This seemed a clear case of preferential treatment by the bank, because of family ties.

Changes in the 1980s

Wilmington Trust began to suffer from some of its policies, and by 1979 it was not doing well. Earnings were sinking, though the fact was masked in 1979 by profits from the sale of the bank’s building. Return on assets was much lower than for its peer banks, and its loan-loss reserves were perilously low. A new president and CEO, Bernard J. Taylor, took over the bank in the summer of 1979, coming to Wilmington from a troubled Philadelphia bank. Taylor convinced Wilmington’s board that their bank was in a grim situation, and he quickly embarked on a plan to save it. One element of Taylor’s plan was to get Wilmington Trust out of bonds. More than half the bank’s assets in 1979 were in 30-year bonds, which were low-yielding and had to be financed with short-term money that was priced every 30 or 60 days according to federal interest rates. Taylor sold off a third of the bank’s bonds just months before the Federal Reserve began pushing interest rates up, a fortuitous move. He put the bank’s money instead into short-term, high-yield investments. With the money gained from these investments, Taylor began to get the bank involved in commercial lending. This was an area in which Wilmington Trust traditionally did little. In 1978 only a fourth of its assets were in loans. But Delaware was undergoing a building boom, and Taylor determined to take advantage of it. He started the bank lending to small businesses and individuals, and this turned out to be both safe and profitable.

In just three years loans went from 26 percent of assets to 44 percent. And the low-yielding bonds, which had made up more than half of Wilmington Trust’s assets when Taylor took over, by 1982 made up only 15 percent of the bank’s assets. The attitude of management had changed as well. When Taylor first began working at Wilmington Trust, the bank had an aristocratic atmosphere. Bankers never took their suit coats off, even on the hottest summer days. CEO Taylor himself began appearing around the office in shirtsleeves, provoking alarm and then relief among his colleagues. This seemed to symbolize the bank’s new direction. Wilmington Trust was ready to work hard to maintain its profits and was not as bound to patrician tradition. Taylor also staunchly maintained that du Pont family and corporate interests had no influence on bank policy. Wilmington’s shares began to shoot up on Wall Street, as the company earned the moniker “the money management firm disguised as a bank” (according to a May 16, 1985 Wall Street Journal article). Wilmington Trust was deemed to be more than just a regular bank, and it apparently had many enthusiastic backers in investment circles.

The bank flourished in the 1980s under Taylor’s direction. It continued to expand its loan program and held loans of $2 billion—more than two-thirds of its commercial assets—by 1989. Its share of the commercial loan market in Delaware doubled, from less than 20 percent at the start of the decade to almost 40 percent in 1989. In ten years the bank had gone from an ailing, tradition-bound institution to one of the most profitable banks in the nation. For the two benchmark measures, return on assets and return on equity, Wilmington Trust showed percentages almost double the average for other banks its size. Not only had commercial lending added to the bank’s profitability, but its traditional business of handling trusts also had grown. By the end of the 1980s more than ten percent of individuals on Forbes magazine’s list of the 400 richest people in the United States had their trusts at Wilmington.

More Growth in the 1990s

After its amazing turnaround in the 1980s Wilmington Trust planned major expansion over the next decade. As the building boom in Delaware began to slow in 1990, most of the state’s banks became unwilling or unable to make new construction loans. But Wilmington Trust was in such a sound financial condition that it continued to make these loans, and the bank picked up a good number of new customers. The bank planned to increase its market share by expansion as well. In 1991 the bank adopted its present holding company structure, with the Wilmington Trust Corporation holding the Wilmington Trust Company. This structure allowed it to meet regulations in the neighboring states of Maryland and Pennsylvania that would allow it to acquire banks there. But first Wilmington Trust turned its attention to acquiring small banks in its home state. In 1992 Wilmington Trust bought the Sussex Trust Company, a $400 million-asset bank with 20 branches in the southern part of Delaware. That part of the state was growing more quickly than the northern area around Wilmington. Soon after this purchase Wilmington Trust took over $45 million in deposits from a failed Westchester, Pennsylvania bank, the Bank of Brandy-wine Valley. Because Brandy wine Valley’s failure was deemed an emergency by Pennsylvania banking authorities, Wilmington Trust was allowed to operate the bank as a branch rather than as a subsidiary. This was contrary to usual practice, but Wilmington used this precedent to convince the state to let it open other branches in Pennsylvania. It soon had branches in Maryland as well.

Wilmington Trust also expanded its role as a precious metal dealer in the early 1990s. In late 1990 Wilmington Trust bought the precious metal program of New York-based Citibank. Citibank was a subsidiary of Citicorp, the nation’s largest bank, and one of the largest banks in the world. Wilmington Trust had cleared the way for this transaction in 1987, when it became the first bank outside of New York City approved by the New York Metals Exchange to store gold and silver bullion. With the 1990 deal with Citibank, Wilmington Trust became one of the largest precious metals retailers in the United States. It built this business up even more over the next few years. In 1992 Wilmington Trust bought up the metals depository business of the Bank of Delaware, and in 1993 it acquired the retail sales and service business of Idaho’s Sunshine Bullion Co.

Next the bank moved to expand its handling of mutual funds. Wilmington Trust had doubled its sales of mutual funds between 1989 and 1994, and it had several competitive advantages over other banks. Wilmington Trust was a state-chartered bank but not a member of the Federal Reserve system, and this outsider status allowed it to do what few other banks could, namely distribute its own mutual funds. Other banks were required to contract with another agent to distribute its funds, but Wilmington was able to manage all aspects of its mutual fund program, which it called the Rodney Square Funds. The bank traded on its expertise in the trust area and its reputation for handling the fortunes of markedly wealthy clients to build up its mutual fund business.

Wilmington Trust’s mutual funds business stumbled in 1994, after taking some losses on risky investments. In July 1994 Standard and Poor’s Corp. downgraded Wilmington’s triple A rating to A, because the Rodney Square funds held 12 percent of its portfolio in structured and variable-rate notes. Standard and Poor’s considered these notes not sufficiently stable, and perhaps they were right, as the Rodney Square fund subsequently lost nearly $4 million. The head of Wilmington’s subsidiary Rodney Square Management Corp. resigned in 1995, and the bank reorganized the unit. But two years later Wilmington’s money management business seemed to be thriving. The firm acquired a 24 percent stake in a New York money management firm, Clemente Capital Inc., in April 1996. Clemente previously had acted as sub-advisor for Wilmington’s trust department, and it was well known for its wealthy clientele. Without revealing minimums, Clemente claimed its mutual funds were basically for people with hundreds of thousands of dollars to invest. This high-end business fit nicely with Wilmington Trust’s expertise. And by purchasing a share in Clemente, Wilmington saved itself the sub-advisory fees it had been paying the firm to manage some $15 million for its clients.

In a similar move, Wilmington Trust next made arrangements with the New York investment firm Morgan Stanley Group and Florida’s J.W. Charles Financial Services Inc. to generate referrals for its trust business. These two investment firms had hundreds of brokers in their sales forces, and Wilmington wanted to reach their broad client bases by paying for referrals. Then in late 1996 Wilmington Trust created a new structure for its mutual fund administration. The bank changed to a so-called master-feeder structure, where assets of several different mutual funds (the feeders) were managed centrally by a “master.” This new structure gave the bank more flexibility in handling different funds and allowed it to convert some of its nonproprietary funds into proprietary ones.

All of these changes led to increasing earnings in the late 1990s. Wilmington Trust’s fees from trust and asset management climbed, and its commercial loan department continued to be quite successful. The bank gained income from its newer ventures while continuing to grow in earnings from its core trust management business. At the end of the 1990s Wilmington Trust seemed in a very solid position. It had used its expertise in trusts to branch into the vibrant mutual fund market and was backed up by an excellent commercial loan portfolio. From a lackluster bank that dealt principally in trusts in 1979, Wilmington had become a powerhouse in financial services in the 1990s. Nevertheless, its growth had been well planned and relatively moderate. Aside from the mutual fund bump in 1994, Wilmington Trust had proved itself uncommonly successful in adapting to new markets and services. Its steady growth was predicted to continue over the coming years.