Bank brokerages, responding to market volatility that has interrupted their seemingly limitless growth, are refocusing on profitability instead of market share.

The refocusing efforts range in complexity. Some are fairly specific, such as changing compensation for cross-selling. In other cases, bank managements are considering broad changes to their corporate structure to achieve better interaction among business lines.

SouthTrust, Huntington Bancshares and FleetBoston Financial Corp. are among banks that have redirected their efforts in a way that shows a shift in priorities for their brokerage units, in some cases doing so only partly because of weaker market conditions.

Foremost among banks taking a new look at the brokerage business, perhaps, has been FleetBoston, which is transforming its Quick & Reilly subsidiary from a transaction-based business model to one focused on advisory-type fees. Fleet on Monday moved one step further, announcing it would discontinue its deep-discount brokerage, SureTrade, and pull those customers into the Quick & Reilly fold. (See related story, page 1.)

Huntington Bancshares is another company that has stepped up efforts to capture profits from brokerage customers.

Last year Huntington’s brokerage unit grew only 10%, despite aspirations for 50% growth, said Rob Comfort, who runs the subsidiary. Though market volatility hurt the retail brokerage in the fourth quarter, the bigger problem, he said, was a regional reporting structure, which resulted in varying degrees of “support for the investment program” from region to region.

A reorganization at the corporate level during the third quarter — which made retail one line of business that reports to one person — has helped, he said. Now, the investment program “is being given equal priority everywhere” in the bank. “Before, we had pockets” of support, he said.

Mr. Comfort is predicting 25% growth this year — ambitious, but short of the 64% revenue growth that Huntington’s brokerage had in 1999 over 1998.

Huntington is also among bank brokerages that have recently begun to compensate their employees for referrals to the retail bank. Huntington began doing so in the third quarter last year, and FleetBoston began paying brokers at New York-based Quick & Reilly for referrals on Dec. 1.

Richard S. White, who heads the capital management group at SouthTrust Corp. in Birmingham, Ala., said that though the bank does not pay its brokers to refer clients to the retail bank, the bank does encourage such referrals.

SouthTrust is still seeing modest growth, although business has shifted toward more conservative offerings, Mr. White said. “It’s good business, because the more services any institution has with a client, the more the stickiness factor comes into being,” he added.

The main reason for all the introspection, obviously, is the degree to which a down market late last year dragged banks’ income from their investment businesses.

According to data from consulting firm Kenneth Kehrer Associates of Princeton, N.J., on roughly 30 bank and thrift securities programs, each program earned an average of $538 on investment product sales per $1 million of retail deposits in December 2000 on an annualized basis.

That number, which was $1,005 in September, dropped to $868 in October and $633 in November. Kenneth Kehrer, who conducts the monthly surveys, said the figure typically hovers around $900.

There is little chance that banks will jettison their involvement in brokerage given how hard they have worked to establish themselves in the field. Ellen H. McKay, a principal of Optima Group Inc., a financial services consulting firm in Fairfield, Conn., said that brokerage services are too entrenched at banks for them to consider getting out of the business. But she predicted that banks will start to look at the business differently.

“They will focus more on the relationship aspect, rather than performance, which was the most important thing,” Ms. McKay said.

As part of that shift, bank brokerages will look for new ways to provide a more integrated relationship between the brokerage and the retail bank, for instance, by making it easier to move money between accounts, she said.

“Especially in the high-net-worth market, we’re seeing a lot of people rethinking what a client wants in terms of service,” she said.

Timothy Willi, a banking analyst at A.G. Edwards in St. Louis, noted that corporate cultures also come into play when looking at returns on banks’ investment arms.

“Everyone’s going to tell us it’s the market, and in the near term, it is. But in the longer term, it becomes a management issue,” Mr. Willi said, because banks have not seen their brokerage units as one of their core businesses.

“Most banks really can’t stomach making a huge commitment in terms of capital, and when you don’t make a full commitment, you’re invariably going to fall behind,” he said. “They have created a stepchild kind of product, and when business is bad, it’s going to make people second-guess why they’re in the business.”

John LaSalle, senior vice president in charge of sales at the brokerage arm of California Federal Bank in San Francisco, attributed his unit’s weak fourth quarter to the market downturn as well. But, he said, slow sales in mutual funds and variable annuities were offset by a “significant” increase in life insurance sales.

“As investors become more cautious, their basic life insurance and wealth transfer needs don’t change,” he said. “We’ve put a lot of effort and training toward a broader profiling of customer needs.”

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