B of A, Banc One Wouldn't Be Mega in Fund Profit

The two big bank mergers announced this week would produce organizations with large mutual fund families. But for all their size, the new fund programs would still be middle-of-the-road when it comes to producing revenues, observers said.

When combined, NationsBank Corp. and BankAmerica Corp. would have $51.9 billion of proprietary fund assets, according to Lipper Analytical Services Inc., Summit, N.J. The combined company would rank No. 18 among U.S. mutual fund managers, on a par with Prudential Securities and Massachusetts Financial Services.

The week's other merger partners, Banc One Corp. and First Chicago NBD Corp., would have $42.2 billion in proprietary assets when their merger is done. The merged company would rank 22d among fund managers, in a slot between Alliance Capital and OppenheimerFunds.

But the fund families of both the new BankAmerica and the new Banc One would be heavily weighted toward short-term money market funds, which reap lower fees than longer-term bond or equities portfolios. At the new BankAmerica, money market funds would represent 60% of assets; at the new Banc One, 45%.

"Clearly the banks, while they are reasonably good money managers, have not been good at marketing, particularly of equity funds," said A. Michael Lipper, president of Lipper Analytical.

"At this point the mutual fund impact on these deals is a little more than a footnote, particularly when you look at it in terms of the size of the revenues that are going to be generated (overall)."

According to Mr. Lipper, the fund family produced by the Banc One/First Chicago combination would be the more profitable of the two, raking in $206 million of advisory fees a year.

The BankAmerica/NationsBank funds would reap $191 million a year, Mr. Lipper said.

To be sure, money market funds are a linchpin of the cash management services banks provide to their institutional clients. But both new banks would have to ramp up their retail sales of stock and bond funds if they wanted to make more profits from their fund families.

The sheer size of their new fund families could help the banks to do that, some observers said.

"There are enormous potential efficiencies and cost savings when combining two separate existing administrative and operations facilities, said Burton J. Greenwald, a Philadelphia-based mutual fund consultant.

Those savings could be used to expand sales forces, hire senior brokerage executives, and buy regional brokerage firms, he added.

The new BankAmerica would benefit from leveraging NationsBank's experience selling stock and bonds off of the new bank's physical reach, observers said. The combined bank would have 4,800 branches in 22 states.

Under Mark H. Williamson, the former head of the Nations Funds, NationsBank has made more progress than most banks selling long-term mutual funds, said W. Christopher Maxwell, a Rock Hall, Md.-based consultant. Its funds are sold through the bank's brokerage as well as through third parties, including registered investment advisers.

"BankAmerica had a relatively more difficult time," Mr. Maxwell said. "They've been reeling around" since the 1994 bond market crash, when BankAmerica infused one of its money market funds with cash.

Officials at BankAmerica and NationsBank said it is too soon to say who will run mutual funds at the combined bank. Mr. Williamson recently left NationsBank to head Invesco Funds Group. He was succeeded by one of his lieutenants, Robert H. Gordon.

BankAmerica's mutual funds have also had management turnover. The bank named G. Randy Hecht, an executive from Roberston Stephens & Co., the investment bank it acquired last year, to oversee all asset management in August.

Mr. Hecht succeeded Alexander Anderson, who left the bank at yearend. BankAmerica has not had an executive with direct oversight for its funds since 1996, when Debra McGinty-Poteet resigned.

In the Banc One-First Chicago merger, both partners have a strong institutional fund slant. Banc One's One Group funds, distributed by Bisys Group Inc., are sold to registered investment advisers through the institutional fund networks of Fidelity Investors, Charles Schwab & Co., and Jack White & Co.

Retail shares are sold through the bank's internal broker-dealer to Banc One customers. Mark Beeson is senior managing director of One Group.

As of this month, 84% of the $26.3 billion of assets in the One Group funds are managed for institutional or trust accounts, with the remaining $4 billion managed for retail customers.

First Chicago NBD's Pegasus Funds are distributed by Bisys. They are marketed to 401(k) retirement plans, pensions, and endowments; to cash management clients and those of the private banking and investment division; and through the bank's affiliated broker-dealer.

The family was created when the mutual funds of First Chicago and NBD Bank were merged two years ago, under the direction of Marco Hanig.

"They have a much weaker retail distribution system than does Banc One," Mr. Maxwell said. "They have stronger institutional business."

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