Banks, slow to take on the management of international mutual funds, are beginning to make up for lost time.

While investing overseas is hardly a natural extension for most banks' domestically oriented portfolio management units, some are forging ahead on their own rather than using subadvisers.

Though these overseas funds can be expensive to run, the approximately 30 banking companies that manage their own international portfolios say that developing this capability is strategically necessary.

"We believe that these markets will be the money-makers for the next 10 to 20 years," said B. Scott Sadler, portfolio manager at Wachovia Corp., Winston-Salem, N.C.

Wachovia and State Street Bank and Trust, for instance, have decided to manage international assets in-house. And they have even ventured forth with emerging-markets funds, which invest in Third World markets.

That approach put two of the banks' funds among the top five international funds with more than $25 million in assets during January, according to data compiled by CDA/Wiesenberger, Rockville, Md.

Buoyed by a rebound in international fund performance, State Street's Seven Seas Emerging Markets fund earned a 9.59% one-month return while Wachovia's Biltmore Emerging Markets fund realized a 8.36% return for the month.

Both banks have managed to keep costs down by relying largely on outside research data instead of sending their own armies of analysts overseas.

Yet other bank executives said the only substitute for being there is hiring somebody else who is.

"The problem gets down to knowing what's going on in a local market," said Peter F. Mackie, executive vice president at Commerce Bank, Kansas City, Mo. "It's our view that you only know what's going on there if you're there." As a result, Commerce Bank's International Fund is subavised by Rowe-Price Fleming, he said.

Despite some banks' success, their ability to attract significant assets into international funds has trailed nonbank competition, analysts said.

Banks have been slow to build critical mass in their funds, observed Amy K. Lipton, vice president at Optima Group, a Fairfield, Conn.-based consulting firm.

"Perhaps if they aligned themselves with well-known money managers or commit sufficient internal resources to build a credible team, it would help entice investors," she said.

Bank proprietary international and global fund assets increased five- fold from yearend 1992 to yearend 1995, but totaled only $17 billion, according to Lipper Analytical Services, Summit, N.J.

International funds invest only in the securities of non-U.S. companies. Global funds invest in both U.S. and foreign companies.

Meanwhile, total assets in all international stock funds almost quadrupled to $197 billion over the same period, according to the Investment Company Institute.

State Street, however, emboldened by its own success, has begun to shop its services as a global money manager to other banks looking for help.

"I expect to have one or two banks signed this year," said William M. Thomas, director of national sales for the Seven Seas Investment Portfolios, Boston.

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