Ripples from the bank merger wave are reaching the niche business of providing administrative services to bank-managed mutual funds.
About a dozen administrators-ranging from big bank technology providers such as Bisys Group and First Data Corp. to boutique firms such as Funds Distributor Inc.-serve 111 banks that manage their own mutual funds. These banking companies are mostly large, and they include such active acquirers as NationsBank Corp. and First Union Corp.
Banks turn to these companies to handle unglamorous but essential chores such as fund accounting, record keeping, and daily calculations of the funds' net asset values. Some also double as distributors for bank funds, handling fund organization and marketing tasks that the Glass-Steagall Act puts off-limits to most banks, though banks increasingly have multiple contracts for fund services.
As their client banks merge, fund administrators are building the scale that they need to make their technology-intensive business more economical. But at the same time, mergers mean bank fund families are in flux-and service contracts are sure to be revisited by the funds' boards of directors.
Administrators are already getting into position, though service contracts are typically not reviewed until a merger is complete.
For instance, at least three fund administrators are expected to vie for a relationship with the combined BankAmerica Corp. and NationsBank.
A contract with the new BankAmerica, which would have $57.9 billion of fund assets under management, would be a plum for any of them. The banking companies expect to merge in the fourth quarter.
NationsBank currently splits its business between First Data Corp.'s investment services unit and Stephens Inc.; BankAmerica uses a PNC Bank Corp. subsidiary, PFPC Inc.
PFPC officials declined to comment, but NationsBank's fund administrators accentuated the positive.
"This is an opportunity to get back in front of these boards to show, among other things, what array of products we're able to offer fund groups," said Barbara Worthen, executive vice president of First Data Investor Services Group, Westborough, Mass.
Ms. Worthen said First Data has played a key role in the expansion of the Charlotte, N.C., banking company's NationsFunds family. "We have several floors there where we have our accounting people," she said.
But Richard H. Blank Jr., a vice president of Stephens, said his firm has never lost a fund administration client to a merger and he doesn't expect NationsBank to be the first. "We've been a good partner to them, and this business lends itself to long relationships," he said.
Bisys Group's investment services arm, the leader in bank fund administration, is conspicuously absent from the BankAmerica/NationsBank contest. Last July, BankAmerica-one of its oldest clients-switched the administration contract to PFPC.
BankAmerica's departure knocked Bisys' fund assets to $146.3 billion at March 31, down 2% from a year earlier but up 6% from yearend 1997, according to Lipper Analytical Services, Summit, N.J. Bisys nevertheless maintained a strong lead over its nearest rivals, SEI Corp.'s financial management group, with $78.5 billion of bank funds under administration, and PFPC, with $66.9 billion.
Several Bisys clients reorganized common trust funds as mutual funds, increased sales, or made acquisitions themselves, helping the company make up for the loss of the BankAmerica account, said David Huber, president of Bisys Fund Services Group, Columbus, Ohio. "Common trust fund conversions were a big chunk of that. We did about $15 billion during the last 12 months," he said.
