First American Corp.'s deal to buy Deposit Guaranty Corp. would bring together two banks with seasoned retail brokerage arms.

Nashville-based First American has been an aggressive acquirer of brokerages that specialize in selling funds and other investments through banks. And Jackson, Miss.-based Deposit Guaranty has successfully sold investment products to its retail banking customers.

"Both banks are very retail-oriented," said Joy Montgomery, president of Money Marketing Initiatives in Morristown, N.J. She added that the banks are not likely to eliminate brokers after completing the merger next year.

"You still need the same number of brokers for the same number of customers," she said, because "customers want to talk to their brokers."

When it comes to managing mutual funds, the new First American would still be small fry. With $2.4 billion of assets under management, First American would rank No. 45 among banks in the fund business, according to information from Lipper Analytical Services Inc., Summit, N.J.

But on the brokerage side, the banks are expected to gain more of an edge.

"On a very broad basis, we are very excited about the similarities and potential synergies between the two asset management groups," said Robert A. McCabe Jr., vice chairman of First American Corp.

"Both companies are very committed to the consumer and small-company customer base," Mr. McCabe said. "Our complementary strengths are strong retail broker programs."

The two banks would have over 100 registered brokers working in 340 branches. Each bank would contribute about half of the brokers.

First American in 1996 bought Invest Financial Corp., which in turn bought Investment Centers of America, Bismarck, N.D. Then the bank folded its own broker-dealer into the acquired company. First American said most of the funds it sells today, between 75% and 80%, are third-party, brand- name funds.

The bank's brokerage unit, Ameristar Capital Markets, expects to take in $16 million in 1997 gross revenue, up 45% for the year.

Richard Ayotte, chief executive officer of American Brokerage Consultants in St. Petersburg, Fla., said Invest Financial Corp. is probably the biggest marketer of investment services to other banks.

"Invest, together with Investment Centers of America, provides investment services to over 400 banks in the country," Mr. Ayotte said. "It is a pretty big piece of business."

Alan R. Leach, president of Deposit Guaranty Investments Inc., a subsidiary of the bank, said his brokerage has 40,000 accounts. It expects gross revenue to come in at $12.3 million this year, 23% more than in 1996.

Over 80% of the brokerage's dollar volume, he said, has been in fixed- income products, but income has been evenly balanced among equities, mutual funds, and fixed income products.

"It is our job to see that people are invested," Mr. Leach said. "In a stock market that is returning 15% to 30% a year, to have the majority of your money sitting in a money market fund in retrospect would not be the wisest thing to do. So we encourage people to keep all of the money working."

Though First American has been leading the way in brokerage, Deposit Guaranty has a clear edge in the proprietary fund business. Its fund complex, the DG Investor Series, has almost half of its $1.6 billion of assets invested in equity funds.

First American's Ameristar fund family has invested only about one- quarter of its $814.9 million in equities.

"My expectation is if the acquirer is serious about pursuing the mutual fund business-which you never know-then they would continue to play to Deposit Guaranty's strengths," said Richard Ross, principal, 50-Plus Communications Consulting, Glencoe, Ill. Deposit Guaranty has a "more diversified, equity oriented base" and is "much more aggressive.

"First American has not been aggressive at all on the mutual fund side," he added.

Deposit Guaranty's funds are distributed through Federated Investors, Pittsburgh; First American uses Bisys Funds Services of Columbus, Ohio.

Louis S. Harvey, president of Dalbar Inc. in Boston, said the acquisition would clearly give First American's fund business scale.

"Most of First American's business to date has been in their immediate family, with customers who have an affiliation with the bank," Mr. Harvey said.

"This now puts them in a league where they can seriously take on Norwest," First American's local competitor for retail as well as institutional business.

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