Three of the four largest US banks by market capitalisation are expanding their retirement divisions via acquisition and by hiring staff as part of their post financial crisis efforts to grow income from the sector.

Wells Fargo, Bank of America and JPMorgan Chase are bidding to administer corporate pension plans, known as 401(k) plans, through which 50m American employees invest for retirement.

The expansion of their retirement divisions, which typically provide low growth but reliable income streams, is part of a shift in the banking industry landscape. Before 2008, large US banks showed little interest in the low margin activity of pension plan administration, including record keeping and legal compliance.

“The retirement business is not as sexy as investment banking or derivatives but the paradigm has changed,” says Kevin Crain, head of institutional retirement at Bank of America. “The administration business offers consistent revenue, profitability and growth, which is the order of the day.”

The targets of the banks are Fidelity, Vanguard and Aon Hewitt, which between them administer almost 50 per cent of assets held in 401(k) plans, according to Plan Sponsor, which gathers data from industry participants.

Banks have been marketing services directly to companies with some success; JPMorgan, for example, has increased 401(k) assets that it administers by 40 per cent since 2008.

However, opportunities for the banks to expand by winning new clients are limited. A Deloitte survey last year found that only 12 per cent of companies with 401(k) plans considered a change in their administrator.

Wells Fargo, the only bank among the top five plan administrators by assets according to Plan Sponsor, has instead focused on acquisitions. Assets administered by Wells have risen more than 60 per cent since 2008, thanks largely to the purchase of Wachovia.

“We are in a privileged position right now among US banks in terms of having the option to make acquisitions and we are actively looking at more targets,” says John Papadopulos, president of Wells’ retirement division.

Hartford, the insurance group, recently put its plan administration business, the 19th largest by assets, up for sale and analysts have forecast further industry consolidation.

Bank of America, however, is focused on organic growth, according to Mr Crain. It aims to double the $100bn in 401(k) assets it administers by persuading more of its commercial banking clients to give it their retirement plans.

Banks also say that administering 401(k) plans increases opportunities to market other products to plan participants. Wells Fargo says more than a third of the money invested in the 401(k) plans it administers is transferred to the bank’s brokerage unit when account holders retire.

Retirement savings, which the Investment Company Institute estimates total $17tn in the US, have become particularly attractive to asset managers since the financial crisis, because they tended to remain invested in the market.

Investment banks are also looking to manage more retirement assets. Last month Goldman Sachs acquired Dwight Asset Management, a money manager that specialises in “stable value” strategies, popular with retirement savers.

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