Bank of New York Co. and State Street Boston Corp. are well known as leaders in securities custody, so it should come as no surprise that last year they also were the largest custodians for banks' mutual fund portfolios.
What may come as somewhat of a surprise is that Bank of New York vaulted ahead of State Street into the top spot, according to Lipper Analytical Services Inc., Summit, N.J.
The reason was Mellon Bank Corp.'s purchase of Dreyfus Corp. At the end of November, Bank of New York was custodian for $73 billion of bank mutual fund assets, some $60 billion from Dreyfus. State Street, by contrast, was custodian for $37 billion of bank mutual fund assets.
The change is more a statistical fluke than a measure of changing fortunes, since Bank of New York was a custodian for Dreyfus before the fund company was purchased by Mellon.
Total mutual fund custody assets were relatively flat last year at both State Street and Bank of New York, with the Boston bank serving as custodian for $583 billion in open-end mutual fund assets at the end of October, more than twice the total for No. 2 Bank of New York.
But even though bank mutual funds are small morsels for giant custodians, they are looking tastier as mutual fund sales slow.
This is because many banks have been transferring trust assets into their mutual funds to build scale, creating one of the few venues for asset growth in the mutual fund business.
"It's a new market segment, so obviously it's an important market segment," said Ronald E. Logue, executive vice president of the mutual fund custody business at State Street.
But Mr. Logue added that State Street devotes less energy to selling mutual fund custody to banks' funds than it does to other fund managers.
Specifically, State Street taps leading distributors and administrators of bank mutual funds, including SEI Corp., Federated Investors, and Concord Holding Corp., to take the lead in selling its custody services. With other fund managers, State Street takes the lead.
The reason for the difference, Mr. Logue said, is that bankers are more interested in talking to distributors and administrators of funds, which can help them build sales. Custodians make duller salesmen, since they handle back-office chores.
Partnering also cuts sales costs, Mr. Logue added. This is an important point since most bank mutual funds are plain vanilla portfolios that don't generate much profit for custodians, according to Thomas R. Abraham, a securities processing consultant in Great Neck, N.Y.
Custodians have been getting most of their profits lately from international investing - a booming business, but one in which banks are still bit players.