Banks are relying on a captive audience of traditional corporate customers to gain a greater share of money market assets.
At a time when mutual fund companies are experiencing a dropoff in their money market asset gathering, some banks are coming on strong by increasing sales in-house from cash management accounts, common trust accounts, and certificates of deposit customers.
Take First Chicago NBD Corp. Money market funds have been a boom business for the midwestern banking powerhouse this year. The bank gained $450 million in net new assets, mostly from corporate and institutional sweep accounts.
"This is more than double what we've done in the past," said Marco Hanig, managing director of mutual funds at the company.
While few banks have enjoyed that level of success, most have seen a gain in money market assets during the year. In the nine-month period ended in October, assets in bank-managed money market funds jumped 17.5%, to $171 billion, according to Lipper Analytical Services Inc., Summit, N.J.
Currently, about 30% of the assets in money market funds reside in bank- managed portfolios. That's up from 20% in 1992.
Conversely, money market sales at mutual fund companies sagged 13% in the first nine months of this year from the same period a year earlier, according to a study done by PLT Research Group, a unit of San Francisco- based investment bank Putnam, Lovell & Thornton.
The study looked at 13 mutual fund companies, including Eaton Vance Corp., Franklin Resources Inc., and Alliance Capital Management Corp.
The nonbank money market funds have lost some of their appeal as banks have built up proprietary money market funds with competitive rates, said Kenneth R. Hoffman, president of the consulting firm Optima Group Inc.
"Banks are increasing the offering of their own money market funds sold through their own sales forces as opposed to the outside," he said.
Mr. Hoffman said that new sales of money market funds tend to be down across the board, but banks have incrementally added sweep account assets to their growing families of proprietary money market funds.
"Those are valuable incremental sales that are not sensitive to rates," Mr. Hoffman said. "Cash sweep accounts as a source of assets are a multibillion-dollar opportunity."
He added that banks can sell the convenience of their in-house money market funds to sweep account customers who normally would wire cash overnight to a mutual fund company.
Mr. Hanig said the better yields on money market funds precipitated a flow of assets out of certificates of deposit.
Mr. Hanig also cited the continued conversion of common trust funds to mutual funds as a major factor in their growth at First Chicago NBD and other banks.
"We converted $1.4 billion this year. When it comes in big chunks all of a sudden, chances are there was a conversion," he said.
Other bankers agree that money market funds held their own compared with stock and bond funds, and helped banks expand assets under management in their mutual fund complexes this year.
"My impression is that most of the bank mutual fund growth has come from the success in money market fund inflows," said Timothy J. Morris, the chief investment officer at Bessemer Trust Co.