Weary of increased regulations, Crossland Federal Savings Bank is preparing to shutter its retail brokerage unit, executives at the thrift say.

Crossland Investor Services is expected to cease operations by late fall, a staff member said. The $4.5 billion-asset thrift, based in New York, launched the brokerage in 1989.

Crossland is negotiating with GNA Corp., an investment marketing firm in Seattle, to step in and run the brokerage program in branches, according to sources inside and outside the thrift. A GNA spokeswoman confirmed only that the company is talking to Crossland.

Will Keep Registration

Crossland intends to keep its securities registration, but has no plans to reactivate the unit, said Paul LaRosa, the thrift's chief operating officer.

The shift appears to mark the first time in recent memory that a financial institution pulled the plug on an active mutual fund and annuities program. The development underscores rising anxieties among bankers about regulation of their investment sales.

Over the past year and a half, regulators have been scrutinizing banks' nascent investment sales businesses. They have come up with reams of guidelines to ensure that bank customers understand that mutual funds and annuities lack federal deposit insurance.

Crossland officials said they saw little choice but to leave the field, even though the thrift has a clean compliance record.

"If I had to point to one thing, I'd say it's overwhelmingly compliance," Mr. LaRosa said. "We felt we could continue to meet all our compliance needs and generate more business by outsourcing."

Industry observers were surprised by Crossland's decision to close the brokerage, which has been operating profitably.

"This is very unusual," said Richard Ayotte, managing partner at American Brokerage Consultants, St. Petersburg, Fla.

While working with a partner makes sense for most banks, "a mature in-house program like Crossland's would be hard pressed" to make more money this way, Mr. Ayotte said.

Other observers said the retrenchment could be a sign that Crossland's management is preparing the thrift for sale. Mr. LaRosa referred questions about this possibility to Crossland chairman Richard Kraemer, who did not return calls for comment.

The thrift operated under federal control for more than a year before being returned to private ownership in August 1993.

Disbanding the brokerage - and thereby paring Crossland's operating costs - would be one way to streamline the company for a sale.

Industry consultants estimate that Crossland's program is producing at least $100 million of annual sales and yielding about $4 million in gross commissions.

But annual expenses are believed to exceed $1 million a year, most of which consists of compensation for roughly two dozen employees. If Crossland goes ahead with its plan to shift its sales force to GNA, at least 15 brokers would be transferred to GNA's payroll. The thrift would still share in the sales revenues.

GNA would also take primary responsibility for ensuring that the investment products sold through Crossland branches are suitable for the thrift's customers, and would oversee preparation of marketing materials. Several Crossland employees seem likely to lose out when the brokerage is disbanded. Among them: Joseph Dolock, president of the brokerage unit, and six Crossland back-office employees.

A contract to run Crossland's program would guarantee GNA a continued presence in New York metropolitan area.

Its biggest client there is Chase Manhattan Corp., which is widely believed to be looking to switch marketers or bring its sales program in-house.

Though the soft securities market has taken its toll this year, Crossland staffers said the downturn was not the guiding factor in decision.

But other observers say market volatility and rising interest rates are taking some of the appeal out of mutual funds and annuities.

The industry will see "a reassessment by financial institutions of their existing programs and their long-range plans," said Paul Werlin, executive vice president of the financial institutions division of Robert Thomas Securities in St. Petersburg.

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