While the bank mutual fund engine is slowing, it isn't fully out of steam yet.
Assets in bank-managed funds swelled 30.6% to $419.9 billion in the 12- month period ended March 31, according to data compiled for American Banker by Lipper Analytical Services, Summit, N.J.
That pace was almost in line with the fund industry as a whole, which saw its assets bloom 32.2% to $3.03 trillion during the same 12-month span.
The findings give fresh hope to banks that have watched their advance into the mutual fund business stall in recent quarters. Further cause for tempered optimism: Banks and thrifts were able to log a 30% annual growth rate without relying on the boost they once got from converting common trust assets into mutual funds.
"Banks are disadvantaged in some areas," admitted Joy Montgomery, president of Money Marketing Initiatives, Morristown, N.J. "But rumors of the death of bank mutual funds are premature."
That is especially true for the largest bank-fund complexes, many of which, during the first quarter of the year, got a major boost from bank mergers and acquisitions. Chase Manhattan Corp., for example, now ranks fifth among bank-fund managers, while its components, the old Chase Manhattan and Chemical Banking Corp., had ranked 11th and 16th, respectively.
Overall, giants like the new Chase are logging the largest gains in mutual fund assets. Two years ago, the 10 largest bank programs controlled 41% of the $219 billion in mutual funds managed by all 110 banks in the business. By March, the top 10 players had amassed a 54% share of the $420 billion managed by banks.
"Companies will have to reach critical size and distribution to manage a full fund family on an ongoing basis," said F. Brian Cerini, president and chief executive of Sierra Capital Management Corp., a unit of Great Western Financial Corp., Chatsworth, Calif. "A number of banks will have difficulty reaching that, but there will be select opportunities for Sierra and others like it to expand outside of the bank distribution channel."
Great Western's Sierra funds, for instance, are now sold by 500 broker- dealers around the country. These brokers are responsible for a whopping 40% of Sierra's sales, Mr. Cerini said, and are expected to generate more than half of its sales during the next few months.
To be sure, there is still cause for concern among banks that have placed mutual funds at the center of their retail product lines. Banks' share of the total mutual fund market slipped to 13.8% at the end of the first quarter, down from 14.3% a year ago and 14% at the end of 1995.
Moreover, a whopping 57% of bank-managed fund assets are in short-term money market portfolios, only slightly less than the 60% these funds claimed two years ago. Equity funds, by contrast, held 26% of bank fund assets at the end of the first quarter, compared with 21% in 1994.
"How much of the bank growth is real asset accumulation in equity funds?" asked Kenneth R. Hoffman, president of the Optima Group, a Fairfield, Conn., consulting firm. With the exception of a few who are targeting the 401(k) retirement market, most banks are not seeing true asset influxes, he added.
But some bankers begged to differ. Peter Herlihy, director of mutual fund and annuities sales at Barnett Banks Inc. in Jacksonville, Fla., acknowledged that it took bank customers longer than other investors to regain their confidence after 1994's market dips. But, for the most part, they are jumping back into mutual funds.
"Our sales down here skyrocketed throughout the IRA season," Mr. Herlihy said.
And others maintain that banks that remain truly committed to their funds continue to see good results. "There is a little bit of a barbell effect," with banks either doing very well or very badly, with few in between, said Allen W. Croessmann, director of mutual funds at the Bank of Boston. "A lot of banks have continued to market their funds while others haven't." Few fall in between.
Optima's Mr. Hoffman, however, is not alone in seeing 401(k) plans as the next frontier for bank-managed funds. During the first quarter, Norwest Corp., Minneapolis, benefited from an influx of dollars into the 401(k) plans it manages, said Lee Chase, head of that bank's mutual fund unit. Great Western is also planning a big 401(k) push, Mr. Cerini reported, with a "fund of funds" designed for that market set to launch this summer.
"Some banks have done an extremely good job in individual IRAs," Ms. Montgomery said. "But in terms of the corporate market, there is tremendous growth for banks to be had."
