Banks boosted the mutual fund assets they manage by 36.4%, to $755 billion, in the 12 months ended June 30, outpacing both the market and the fund industry at large, according to data prepared for American Banker.
The increase from $553 billion in mutual fund assets reported at midyear 1997 was fueled by acquisitions, a bull market in equities, and conversions of trust funds.
During the same period, the Standard & Poor's index of 500 stocks rose 28.1%, and assets of the fund industry as a whole rose 28.3%, to $5.152 trillion.
It was the strongest year-over-year rise in bank fund assets since the second quarter of 1995, when banks posted a 56% increase, reflecting Mellon Bank Corp.'s August 1994 purchase of Dreyfus Corp.
But observers recommended caution in interpreting the second-quarter data from Lipper Analytical Services, Summit, N.J.
"All of this (asset increase) has been in an up market," said Edward E. Furash, chairman of Furash & Co., a Washington consulting firm. Markets have been volatile since mid-July, and if that persists, things might get rocky for banks: "They are dealing with a great deal of consumers that are first-time investors."
That said, he added, banks deserve kudos for making inroads in a business that most began to emphasize only five or six years ago.
"The banks have now gained a seat at the mutual fund table," Mr. Furash said. "They've established almost a parity position with the rest of the fund industry."
Among the top 20, two banks-First Union Corp. and National City Corp.- more than doubled their mutual fund assets in a year, according to the ranking. (Lipper's asset tables begin on page 8; fund performance tables by CDA Wiesenberger start on page 12.)
First Union increased its assets under management 106%, to $62.9 billion. The Charlotte, N.C.-based company ranked second among banks that manage funds and in the top 25 of all fund companies.
National City, Cleveland, registered a 154% rise, to $13.8 billion, ranking 17th among banks that manage funds. Its March 31 acquisition of First of America Bank Corp., Kalamazoo, Mich., which managed $6.9 billion in funds, accounted for most of the increase.
Meanwhile, Mellon Bank Corp. of Pittsburgh became the first bank whose mutual fund business controls more than $100 billion of assets, cementing its No. 1 position. Its fund assets grew 21%, to $105.6 billion.
Joy Montgomery, president of Money Market Initiatives, Basking Ridge, N.J., said some of the mutual fund assets may have come from banks simply converting common trust fund assets to a mutual fund structure.
"Not to take away from the banks' progress, but we've got to temper that with bank growth," Ms. Montgomery said.
Several banks beat the averages without trust fund conversions. Among them was 15th-place J.P. Morgan & Co., whose fund assets rose 55%, to $15.7 billion.
The New York bank made a concerted effort to boost fund assets by, among other things, launching "an aggressive plan at the beginning of 1997 to broaden availability and improve the visibility at the J.P. Morgan Funds," said George C.W. Gatch, managing director and head of U.S. mutual funds.
Morgan also reduced its minimum investment to $2,500, from $100,000; made the funds available on Charles Schwab & Co.'s OneSource mutual fund supermarket; and cloned three successful institutional funds for the retail sector, Mr. Gatch said.
Norwest Corp. of Minneapolis did convert trust funds, but the total was less than $400 million, said Lee Chase, a senior vice president for retail investment products at Norwest Investment Management.
Norwest's fund assets grew 42%, to $21.8 billion, largely on the strength of equity performance, she said. Other factors were the growth in Norwest's 401(k) business and an increase in the number of brokers selling the funds, Ms. Chase said. Norwest hired 88 new brokers in the last year.
First Union's William M. Ennis attributed his bank's asset growth in part to the bank's recent acquisitive streak.
During the 12 months through June 30, First Union picked up about $17.3 billion in fund assets through its acquisitions of CoreStates Financial Corp., Signet Banking Corp., and Wheat First Butcher Singer.
But Mr. Ennis, who is managing director for the Evergreen Fund family, added: "I think there are a number of factors to our growth, including good performance and robust sales growth."
Mr. Ennis also credited the bank's extensive branding campaign initiated this year, which has sought to make the Evergreen Fund family as recognizable a name as Fidelity Investments or similar fund companies.
Banks have been vocal about the desire to increase fee income by boosting their mutual fund assets, and there is evidence that they are making progress, said David Berry, director of bank equity research at Keefe Bruyette & Woods, New York.
"Fee income growth has been explosive at big and small banks, and an element of that comes from trust and investment management," Mr. Berry said.
For instance, data from Keefe Bruyette show that First Union's fee income from mutual funds grew 62% for the second quarter of 1998 compared with the same period last year, generating fees of $102 million.
Banks have yet to reach a ceiling in their accumulation of fund assets, Mr. Furash said. "They've got be able to go toe-to-toe with the greater market."
Ms. Montgomery said banks outside the top 10 or 20 still have a journey ahead of them: "For some banks it is still a relatively new business, so there's going to be growth."
