American Express Offers Fund Statements to Banks

An arm of the American Express Co. is introducing a service that produces mutual fund account statements for banks, avoiding the need for institutions to give third-party fund providers access to valuable client information.

Using software developed for its Shearson Lehman Brothers subsidiary, American Express is hoping to tap into banks' growing mutual fund business.

Unanswered Question

This comes as American Express - a fierce competitor in some bank product lines - is trying to attract banks that are looking for outside firms to run their data processing operations, arrangements that have become known as outsourcing. But just how much business banks are willing to throw directly to a nonbank rival remains to be seen.

"This is a technology we have that is perfect for banks," said Stephen Wyle, senior vice president for strategic planning of American Express' Boston-based Shareholder Services Group. That division is the second-largest mutual fund transfer agent in the country, behind DST Systems, Kansas City, Mo. Both perform back-office operations for mutual funds.

Banks can contract with American Express to run the system for them and produce the statements, for which a fee of $3 to $10 per transaction is paid by the mutual fund. Or banks can buy a license from American Express to run the software on their own computers. The software runs on computers using the Unix operating system, which allows it to be installed on a variety of hardware brands.

Cross-Selling Opportunities

This software gives banks the opportunity to cross-sell products to customers, Mr. Wyle said. "It's not a question of losing fee income. It's a question of losing control over your customers," he said.

"It's a highly competitive area," said Leslie Bains, head of investments in the private banking division of Citicorp's Citibank unit. She said some banks may be interested in the service because delivering client information efficiently is an important way for financial institutions to distinguish themselves.

"This would be attractive for them to retain the ownership of the account," said Donald Hearn, senior vice president in charge of mutual funds at U.S. Trust Corp., New York.

Enhancing Banks' Offerings

Mr. Hearn, who worked in the Shareholder Services Group while this product was being developed, said banks are likely to be interested in working with a fund that agrees to work with American Express because the fund "could look more like it was a product offered by the bank."

American Express last week signed up Essex Corp. - the largest marketer of annuities through banks - making it the first to use the service at a bank. Napa, Calif.-based Essex is starting its own mutual fund broker-dealer business, which it will introduce with the American Express system.

The service is slated to be up and running Sept. 1.

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