Banks that sell mutual funds are feeling the pinch as consumers' enthusiasm for uninsured investments wanes.
Bankers say customers have shown signs of skittishness since February, when markets became volatile and interest rates began rising.
"Those things have a tremendous bearing on the customer," said Mike McGibbony, executive vice president of Worthen Investments, a unit of Worthen Banking Corp., Little Rock.
In all, fresh inflows to mutual funds totaled $8.8 billion in May, down from $10.1 billion in April and less than half the $19.2 billion inflow of May 1993, the Investment Company Institute reported last week.
Stock funds took in $9.9 billion during May, down from $11.2 billion in April, but ahead of May 1993's $8.8 billion inflow.
But bond funds -- the most popular offering with the conservative customer base of banks -- have been hard hit.
These funds, whose value declines when interest rates rise, had a $1.1 billion outflow during May. That is unchanged from April, but it is a sharp reversal from May 1993, when $10.4 billion in new money flowed into bond funds.
Volume Well Behind '93 Pace
Bankers say the reversal in the bond market has cut into mutual fund sales. Volume in the first five months of 1994 is lagging well behind last year's healthy pace.
At Worthen, for instance, fund sales through the brokerage unit were down 15%, compared with the first five months last year.
And at the brokerage unit of New Orleans-based First Commerce Corp., mutual fund sales volume fell 50% between March and May, though revenues from fund sales are only 5% below last year's level.
Some investors in bond funds have been jittery about declines in share prices, said Worthen's Mr. McGibbony. "Fixed-income investors have more questions. They sometimes feel that the price is not supposed to change."
In contrast, investors in growth-oriented stock funds seem to be hanging in there, because many of them have a strong understanding of investment and "a grasp of where they're going in the long term."
New Sales Way Off
Mutual fund sales are the soft spot in First Commerce Investment Services' booming business, said Joe Galloway, sales manager of the brokerage unit.
Brokerage trades and dollar volume are both up, with Treasuries, municipal bonds, and other governmental securities picking up some of the business that had been flowing to mutual funds, he said.
Though the unit is doing record business in sales of fixedincome securities, new sales of mutual funds are way off, he said.
It's not that investors are pulling out of funds; rather, the pace of new investments has slowed to a trickle.
'An Awful Lot of Phone Calls'
"We haven't seen many mutual fund redemptions, but we have certainly fielded an awful lot of phone calls," Mr. Galloway said.
Still, repeat business remains strong. Mr. Galloway said fund sales tickets now average $18,000, down from $22,000 a year ago, "when there were a lot of new investors."
Repeat customers are showing strong interest in equity funds, a sign that "people are gaining some comfort with investing," Mr. Galloway said.
For all the ups and downs, both First Commerce and Worthen remain bullish on the brokerage business.
At each company, mutual funds account for about 40% of the brokerage unit's business. Sales of individual stocks and bonds make up the balance.
"This is a total commitment, not an experiment," Mr. McGibbony said. The brokerage has been good for the bank "from a cross-selling and customer relationship standpoint."
