Bank-managed mutual fund assets slipped 0.8% during the third quarter, to $1.024 trillion, the first decline on record, according to a survey prepared for American Banker.
Like the rest of the mutual fund industry, banking companies' fund operations were hit by investor anxiety over rising interest rates and declining equity prices.
But banking companies got some protection because their mutual fund businesses are less skewed toward equities than is the fund industry at large. Fund assets managed by nonbanks fell 1.8% in the third quarter, to $4.952 trillion, dragged down by a 4.1% decline in equity portfolios.
Indeed, some banking companies managed to buck the trend. The mutual fund units of Bank of America Corp., Chase Manhattan Corp., and Northern Trust Corp. were among those that posted solid asset increases in the third quarter. (Tables begin on page 12.)
Money market inflows fueled the gains at B of A and Chase; Northern Trust reorganized trust funds into mutual funds, helping to boost its equity portfolios by 29%. Consequently, B of A's fund assets rose 3.7%, Chase's 2.4%, and Northern Trust's 10.9%.
The data show how banking companies' mutual fund operations have matured since Lipper Inc., a Summit, N.J.-based unit of Reuters, began tracking the business for American Banker in December 1992. In the early 1990s, bank fund asset growth routinely outstripped that of nonbanks, powered by conversions of trust and deposit accounts. As a result, mutual fund management has become a significant profit center for several banking companies and a promising window on the future for many others.
However, "the days of rapid growth are behind banks," said W. Christopher Maxwell, a veteran bank mutual fund executive who now runs a consulting business, Maxwell Associates, in Rockhall, Md. "It's certainly more difficult to get new customers into your funds than it is to convert bank customers."
Bank fund executives acknowledged that it was a tough quarter for gathering assets.
"It seemed like people couldn't decide where to put their money," said Jeffrey Vogelbacker, first vice president of proprietary investment products at SunTrust Banks Inc. in Atlanta. SunTrust's fund assets tumbled 5.2%, to $20.1 billion, largely because of declines in its equity portfolios, which make up more than one-third of its assets under management.
In bucking the trend, Bank of America credited marketing efforts that played up its funds' strengths. Advertisements emphasized how the company uses subadvisers to oversee its mutual funds, said Ann Anderson, a spokeswoman for the mutual fund program. "We cull expertise from outside money managers to make our mutual funds more appealing."
Bank of America's money market fund assets rose 7.1%, to $51.4 billion. The Charlotte, N.C., company manages $69.9 billion of fund assets, ranking fourth behind Citigroup Inc., Mellon Bank Corp., and First Union Corp.
Eighth-ranked Chase Manhattan also stepped up marketing of money market funds. Its campaign focused on building product awareness among employees who cater to large corporate customers, said Sarah Jones, head of global sales and marketing for Chase mutual funds.
Chase now has the technology to more easily link large customers to the money market product, which can include sweep services. "We got the word out across the bank that this is available," Ms. Jones said. Chase's money market assets jumped 5.4% in the third quarter, to $36.5 billion. All told, the New York company manages $48.3 billion in mutual funds.
Northern Trust, the No. 11 bank in mutual fund assets under management, converted $1.5 billion of common trust funds into mutual funds, said Lloyd Wennlund, managing director of mutual funds. The company also increased marketing efforts by "aggressively advertising" certain funds, including the Northern Technology Fund, Mr. Wennlund said. The portfolio, with a 12-month return of 113.16%, has been one of the top-performing bank-managed funds all year. (See related story on page 13.)
In other cases, banks with funds in high-tech and other so-called hot markets probably fared better in the third quarter, an analyst said.
"Almost all the net inflows in the industry gravitated to more aggressive growth funds," said Scott Cooley, senior analyst at Morningstar Inc. in Chicago.
Managers of bank mutual fund programs say the public now makes very little distinction between bank- and nonbank-managed funds.
"From the standpoints of management and distribution, the fact that we're a bank is of little import," said Lee Chase, vice president for markets and distribution of mutual funds at San Francisco's Wells Fargo & Co. "In fact, I think we have an advantage. The bank acts as a great referral service."