Bisys Group, a top provider of mutual fund services to banks, announced Friday that its largest client is taking a lucrative chunk of business elsewhere.

The board of BankAmerica Corp.'s Pacific Horizon Funds voted to terminate its mutual fund distribution and administration contracts with two Bisys units-Concord Financial Group and Concord Holding Corp., Bisys announced.

The funds, with $14 billion in assets, have used Concord's services for a decade. Indeed, executives at Security Pacific Corp., which BankAmerica acquired in 1992, helped to organize Concord. BankAmerica had options to acquire a minority stake in the firm until it was bought by Bisys in 1994.

"We are shocked and deeply disappointed by the actions of the fund's board of directors, especially given our long and successful relationship," Lynn J. Mangum, chairman and chief executive officer of Little Falls, N.J.- based Bisys, said in a prepared statement.

Such a public falling-out is a rarity in the bank mutual fund world. Banks typically develop close relationships with their fund distributors, relying on them to help develop and carry out sales strategies and to handle an array of technology-intensive services such as communications with shareholders.

Reasons behind the Pacific Horizon Funds' move could not be learned by press time. But observers said the development underscores the changing nature of the bank fund business.

"Those relationships are more cosmetic than real now in most instances," said Burton Greenwald, a mutual fund consultant based in Philadelphia. He said as banks gain more expertise with mutual fund management, they become less willing to pay others to handle details.

That has costly consequences for the specialists have helped banks keep their mutual fund businesses humming by handling technical chores such as accounting, recordkeeping, and compliance.

Bisys noted that the Pacific Horizon Funds brought in $15 million-5% of its revenues-in fiscal 1997, which ended June 30.

The company said it intends to take a one-time charge-yet unspecified-to "realign operations." It added that the loss of the Pacific Horizon Funds account will slow earnings growth by about 15 cents per share in fiscal 1998. Analysts now expect earnings to come in at $1.73 per share.

Bisys, which entered the mutual fund services business in 1993 with its acquisition of Winsbury Group, became the leader in the field when it bought Concord.

It now administers more than $100 billion in fund assets on behalf of client banks, and would remain the top provider of fund services to banks even after the Pacific Horizon Funds' departure, slated for September. Its other clients include fund families managed by Chase Manhattan Corp. and First Chicago NBD Corp.

Bisys executives were unavailable for comment. A BankAmerica spokesman said Friday the fund's board had alerted the bank of its actions, but had not yet provided a formal, detailed notice.

Bisys will continue to serve as transfer agent for the funds, said Bruce McConnell, a partner at Drinker Biddle and Reath, Philadelphia, who serves as independent counsel to the Pacific Horizon Funds and the funds' board of directors.

Bank of America will serve as administrator to the funds, PFPC Inc. will serve as sub-administrator, and Provident Distributors Inc. will be the funds' distributor, Mr. McConnell said.

Bisys shares fell 16.6% Friday to close at $32.625.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.