Eastern Bank is making a major move to expand its private banking with a $528 million deal to acquire Cambridge Trust, while simultaneously selling its insurance business for $510 million to brokerage giant Arthur J. Gallagher & Co.
The Boston-based bank’s holding company, Eastern Bankshares, announced both deals after the stock markets closed on Tuesday. They mean the bank will depart the insurance business while beefing up its wealth management operation.
“They are coincidental but very complementary,” Eastern chief executive Bob Rivers said. “Neither was started with the other in mind, but they happen to align in time and really make a great story together as we exit one large fee business and build our presence in another.”
The fee business being exited: Eastern Insurance Group, a brokerage that sells various property, casualty, and health policies. Eastern has steadily grown it through a series of acquisitions over two decades, primarily in Eastern Massachusetts, into the third-largest bank-owned insurance business in the country. Rivers said buying brokerages was becoming more challenging because of the prices they commanded, and that inhibited Eastern’s ability to grow the business. Arthur J. Gallagher, based in suburban Chicago, is one of the biggest insurance brokerages in the world. Rivers said the buyer committed to retaining Eastern’s 400-person insurance team, led by Tim Lodge.
The fee business Eastern wants to grow: wealth management and private banking. Cambridge Trust is one-fifth the size of Eastern overall, but its wealth management business is nearly 40 percent bigger than Eastern’s, as measured by assets under management and administration. So Eastern will more than double its presence in that space, becoming the largest bank-owned investment adviser in Massachusetts. Cambridge has a strong private banking operation, while Eastern’s is relatively small. And Cambridge already has a team catering to venture-backed startups, a business Eastern has wanted to enter, particularly after this year’s fire sales of Silicon Valley Bank and First Republic. Eastern will keep the Cambridge Trust name as a brand name for its investment management and private banking work.
“With Eastern’s help, we can try to scale that capability through the entirety of Eastern’s footprint,” Cambridge chief executive Denis Sheahan said. “The companies together are a lot stronger than they are apart.”
Both banks have significant lending relationships with the Massachusetts Housing Partnership, a quasipublic agency that finances affordable housing projects. Together, the two banks contribute about $175 million a year to the agency’s deals. The executives said that number will increase to $225 million after the merger is complete.
Assuming it is blessed by regulators, when the deal closes early next year, it will leave the combined bank with $27 billion in assets, including $5.5 billion coming from Cambridge. The deal will also cement Eastern’s position as Greater Boston’s fourth-largest bank, after behemoths Bank of America and Citizens, and within striking distance of number three: Santander.
In another twist, Sheahan will become Eastern’s new chief executive, while Rivers becomes executive chairman. Eastern president Quincy Miller, who, at 48, is considered the heir apparent to Rivers, will add chief operating officer to his duties. Rivers said he doesn’t expect any changes to his succession planning, in part because Sheahan, who is 58, and Rivers, 59, are about the same age. Miller, who has been leading Eastern’s sales team, will focus more on back-office work including IT and human resources, with the intention of better preparing him to take over as chief executive someday.
Excluding the insurance business, Eastern employs about 1,700 people while Cambridge has 400. Cambridge’s 22-branch network extends to the suburbs north and west of Boston, as well as Southern New Hampshire, giving it some overlap with Eastern’s 97-branch franchise. So it’s likely the merger could lead to some branch closures in places where two branches are close to each other. Any displaced branch employees will be offered jobs in the branches that remain, Miller said. However, there will likely be some unspecified job loss in corporate office roles.
“We’re going to need all hands on deck through the conversion,” Rivers said. “I would expect, over time, that the employment picture will be net the same, if not better.”
Investors in Cambridge Bancorp, the holding company for Cambridge Trust, will receive roughly five shares of Eastern in exchange for each share of Cambridge that they own. That represents a 24-percent premium to Cambridge’s average share price for the past 30 days. Sheahan and three other Cambridge Bancorp board members will join Eastern’s board.
Sheahan and Rivers said the deal came together through private conversations earlier this year. It’s not as if Cambridge was looking to sell. Sheahan said he hadn’t even hired an investment bank when he started talking with Rivers about a partnership.
“When Bob approached me a few months ago, . . . it was all about what we can build together knowing Eastern was making a decision around their insurance business,” Sheahan said. “As I listened to Bob’s vision, I found it to be very compelling.”