Managing mutual funds remains a top priority among the largest banks - even though the business has yet to contribute much to the bottom line.

That was the clear message broadcast by Edward Crutchfield, chief executive of First Union Corp., in an interview with American Banker last week. Mr. Crutchfield said he would like to see his bank's $11 billion- asset mutual fund family grow to $100 billion by the year 2000.

Though bank mutual fund executives and consultants are skeptical that Mr. Crutchfield can attain such a Herculean goal, he is by no means alone in his enthusiasm for the fund business.

"We were late to the game, but we're really beginning to see the advantage of having proprietary funds," said Anne-Drue Anderson, treasurer of H.F. Ahmanson & Co., which manages just over $200 million in fund assets. "It's a way to diversify bank income, which is a big plus when deposits are getting harder and harder to gather."

Some important clues to how banks view mutual fund management emerged in a recent study of 27 large banks with proprietary mutual fund families.

Survey participants included such top fund managers as Mellon Bank Corp., NationsBank Corp., and Wells Fargo & Co. Together, the 27 banks control $253 billion in fund assets - more than two-thirds of the mutual fund assets managed by banks.

One key finding of the study, by consultant Joy P. Montgomery of Money Marketing Initiatives, Morristown, N.J., is that the stature of mutual fund executives within the bank has been elevated in recent years.

Most of these banks have given their fund programs' top manager the title of executive vice president. One was even called president of a mutual fund subsidiary. "The highest title you ever used to see was vice president," Ms. Montgomery said.

The upgrade in titles is more than honorific, Ms. Montgomery maintained. She found that eight managers of bank mutual funds report directly to the chief executive, and another 12 report to an executive vice president. "The perceived importance in the bank has been elevated," she said.

For example, Christopher Maxwell, a KeyCorp executive vice president who oversees the Victory Funds, reports to the bank's chief investment officer who, in turn, answers to chief executive Victor Riley.

"To be two levels down from the CEO is an important statement that the business is important to the bank," Mr. Maxwell said, even though "it doesn't generate all that much revenue right now."

In addition, the largest banking companies have begun aggressively pushing more departments within the bank to sell proprietary funds.

Many bank-managed funds began as trust department products, but now they are being sold through the private banking units and corporate cash management and employee benefit plan businesses.

In addition, Ms. Montgomery said, banks are hiring "internal wholesalers," employees who promote the bank's own funds to the various departments. Some banks have even hired wholesalers to promote their funds to other financial intermediaries.

Once only found in the trust department, Union Bank's Stepstone Funds are being sold to its corporate sweep account customers. In September, the bank introduced its money market fund to retail customers who want to hold money there in lieu of a checking account.

"We're aggressively building products and services around the mutual funds," said R. Gregory Knopf, vice president and managing director of the Stepstone Funds.

Banks are reluctant to report the contributions to earnings that their own funds make, and one consultant thinks he knows why.

Kenneth Hoffman, president of the Fairfield, Conn.-based Optima Group, said that commercial banks drew in $375 billion in total revenues last year. Meanwhile, the mutual fund industry itself garnered only $8.1 billion in investment management fees.

"The amount of attention banks are placing on the success of proprietary mutual funds is out of proportion to the actual investment management revenues" they will generate, he said.

Indeed, growth will prove extremely difficult, given that 70% of total mutual fund assets are held by the largest 10 mutual fund companies, Mr. Hoffman said.

This skepticism isn't clouding the optimism of the banks included in Ms. Montgomery's study.

"The major banks who are going to be players in this industry are going to be huge competitors," Union Bank's Mr. Knopf said.

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