When Midwest giant First Bank System Inc. gobbled up the much smaller Boulevard Bancorp in May, it not only fattened its banking empire, it added heft to its mutual funds.
First Bank did this by merging Boulevard's funds into its own proprietary mutual fund family.
A handful of banks have had similar experiences, and more are likely to, as banks continue to get into the mutual fund business and as bank mergers continue apace.
But First Bank's experience is educational on one point. While the merger was successful, a senior official said the company was surprised by how hard it was to handle the combination.
"It has not been an easy process," said Jeffrey Wilson, a First Bank vice president who helped oversee the transfer of the Boulevard Funds for First Bank.
Minneapolis-based First Bank operates a proprietary family called the First American Investment Funds. Before the merger the family had almost $3.9 million of assets spread among major bond, equity, and money market categories
Chicago-based Boulevard's proprietary family, which was called the Boulevard Funds, had $118 million of assets in five portfolios in the same categories.
After First Bank bought Boulevard, managers had to decide whether to incorporate the Boulevard Funds into their own proprietary family, or to run the two separately.
Bank officials decided that most of the portfolios held promise and should be merged into the First American funds.
This turned out to be a twostep process. Initially, the name of the Boulevard Funds was changed to First American funds. Then the assets in two of the Boulevard portfolios were moved into similar portfolios that First Bank had operated before the merger.
Several management and administrative changes also were made. For example, First Bank replaced the portfolio managers of the old Boulevard Funds with First Bank's portfolio managers.
Christopher Spofford, an associate at Putnam Lovell in New York, said, "It's rare for a company to trash a [mutual fund investment] management team" like this.
But since mutual funds didn't drive the merger, the move was understandable, he added.
Additionally, the old Boulevard Funds had to be converted to multiple share classes, like the First American funds. Bank officials also dumped Federated Investors, Pittsburgh, as the Boulevard Funds' administrator, distributor, and transfer agent.
SEI Corp. , Wayne, Pa., took over these duties, since it had been handling them for First Bank.
The change didn't cause any bad blood between First Bank and Federated, said Jeffrey Stealing, vice president in charge of proprietary relations for Federated.
"Once a merger has been announced, you generally know who is going to be providing the services," he said. "You're not in a position to negotiate at that point, so you just try to facilitate the transfer."
