Nashville's First American Corp. has chosen a sideline - helping small banks get into the brokerage business - where others have stumbled
NationsBank Corp. and the old NBD Bancorp are among the companies that have pulled the plug on ambitious but unprofitable efforts to sell investment know-how and products to community banks.
"You know intuitively there's got to be a way to make it happen, but it's beyond the reach of anybody right now to do it profitably," said Russell C. Browne, first vice president in charge of First Chicago NBD Bancorp.'s insurance sales.
First American, however, seems to think it has the answer. Last Wednesday, the $9.7 billion-asset banking company bought a third-party marketing firm - Invest Financial Corp. - that specializes in setting up brokerage operations in small to medium-size banks.
By buying Invest's expertise and its book of business with more than 500 banks, First American hopes to make a go of it, and to gain a steady stream of fee revenue.
But it's hard to wring profits from small banks.
NBD tried to leverage its correspondent banking relationships with community banks, but their meager sales volume didn't cover the expense of sales managers and compliance officers to run and monitor them the programs, said Mr. Browne.
Moreover, some community banks resisted the idea of having NBD help run their brokerage businesses while competing for customers and deposits through nearby branches, he added.
NationsBank's similar program - a chief component of a 1992 joint venture with Dean Witter Discover & Co. - never got off the ground. The entire venture collapsed after only two years.
But despite those failures, an industry observer says, more such efforts are likely. Small banks' desire to offer investment products eventually outweighs competitive concerns, this observer said.
"The idea is right. The question is one of execution," said Edward E. Furash, chairman of Furash & Co., a Washington financial services consulting firm.
Some of First American's newly acquired bank clients said they weren't concerned about handing over brokerage operations to the bank as long as First American stays out of their markets.
"At this point our territories do not overlap, so we are not troubled with Invest being owned by a bank in any way shape or form," said Ronald K. Strand, an executive vice president at Community First Bankshares, Fargo, N.D.
Dennis C. Bottorff, First American's chief executive, said the bank company would keep hands off in managing Invest. He added that Invest representatives would be free to sell a broad range of investment products. There is no plan to launch proprietary mutual funds or annuities, he said.
