CHARLOTTE, N.C. - It was bound to happen sooner or later.

Over the past year, expectations have been running high that ambitious banks would start to acquire investment companies. The reason: to rapidly achieve economies of scale in their funds businesses.

Last week, First Union Corp. took the first big plunge, agreeing to acquire Lieber & Co., which manages the $3.3 billion Evergreen Funds.

Other banks that have expressed interest in buying mutual-fund management companies are Shawmut National Corp. and Chase Manhattan Corp. Indeed, Chase was a pioneer in the field, having acquired the $120 million-asset Olympus family of mutual funds in March.

A Natural Step

Such purchases are a natural evolutionary step for banks, said Mary Pat Thornton, a partner with Putnam Lovell, a New York investment banking firm that focuses exclusively on investment-management companies. "Eighteen months to two years ago, banks were just getting excited about mutual funds," she pointed out. "Now a number of institutions are way down the road in developing products."

It's easy to see why acquisitions of fund companies appeal to banks as a way to expand in the business. It takes time to build assets through sales, and many banks have already mined their trust departments for readily-convertible assets.

And asset growth is clearly important to banks in the business of managing funds.

By teaming with with Lieber & Co., First Union will dramatically boost its mutual fund assets under management from $3.6 billion to $6.9 billion. The deal is impressive for its sheer scale, said J. Abbott Sprague, president of Fund Management Co., a unit of Aim Management Group, a Houston-based mutual fund company.

Several banks have expanded their proprietary mutual fund businesses through acquisitions of other banks, Mr. Sprague noted. But First Union is the first bank to buy a fund business that matches its own in size.

"They're testing some new waters," Mr. Sprague said.

Observers say that more such deals are very much in the wind.

|Acquisition on the Mind'

Avi Nachmany, a partner at Strategic Insight, a New York-based mutual fund consulting firm, offered a similar view, noting that many big banks have mapped out ambitious expansion plans in the mutual funds business.

"Every one of them has acquisition on the mind," Mr. Nachmany said. "They're going at this very aggressively and on all fronts."

That's not to say that such acquisitions will be easy for banks. Mr. Nachmany said the jury is still out on the First Union deal.

"Evergreen is a company that hardly participated in the expansion of the mutual fund business," he said. The Evergreen Funds' assets have grown by about 50% since December 1987. Fund industry assets have grown nearly 250% in the same period.

And Mr. Sprague warned that mutual fund directors and trustees will want satisfactory answers to a lot of questions before they approve such acquisitions. "Will services improve? Will current customers benefit? There are a myriad of issues," he said.

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