Magazine article American Banker

Quietly, Private Bankers Enlist Detectives

Magazine article American Banker

Quietly, Private Bankers Enlist Detectives

Article excerpt

Quietly, Private Bankers Enlist Detectives

Meet Daniel E. Karson. If you're wealthy and plan a new private banking relationship, he's likely to know a lot about you.

Mr. Karson is a managing director and general counsel of Kroll Associates, a private investigation firm specializing in business matters.

From Duvalier to Marcos

Kroll has made headlines in the stealth business by tracking down hidden assets of deposed Haitian dictator Jean-Claude Duvalier, Iraqi leader Saddam Hussein, and Ferdinand Marcos, the former leader of the Philippines.

But lately Kroll and a handful of other detective firms - which spend most of their time doing routine searches for corporate lawyers and bankers involved in bankruptcies and workouts - have found lucrative niches in the discreet world of private banking.

The gumshoes are being hired to do background checks on prospective clients and - especially - to track down assets of clients who walk away from their loans through bankruptcy or illegal means.

"Two years ago we began marketing to the private banking sector, and there was not an unfriendly reception," said David Armistead, a managing partner with Claims and Assets Research Services Inc., a private investigations firm in Chicago.

Today, he said, up to 15% of his company's assignments come from bankers to the rich.

Behind the Need

The newfound need for truly private eyes has three chief causes: Private bankers are more aggressive in marketing their lending services, they are expanding outside of their home territories, and they are doing it in recessionary times. As a result, loan delinquencies and workouts are rising quickly.

"We're trying to be very careful and learn from the mistakes we've made and other people have made," said Wilma Smelcer, head of private banking at Continental Bank Corp. "The biggest risk to our private banking effort is to make a big, bad loan."

The Chicago bank, like most of its competitors, keeps a running file with financial information about its clients and also the names of their attorneys and philanthropic affiliations. It's also been hiring former FBI agents to conduct credit checks.

|Various Banks Got Caught'

But now the bank is considering hiring detectives to probe clients outside the Chicago area.

"Private banking units in various banks got caught by not fully checking into people," said Sandra L. Williams, a senior credit officer at Continental.

That acknowledgment is unusual. Many bankers privately admit to shadowing potential clients, but few are willing to say so publicly.

"The last thing you want is to insult a client who's worth a couple of million dollars," said Steven Blumenfield, director of marketing for Bishops, a New York-based business investigations company. …

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