Consumers ended 1994 with heavy buying of fixed-income securities that helped cushion the blow of lagging mutual fund sales at bank brokerage affiliates.

But while the uptick helped, it didn't exactly make December a bang-up month.

Indeed, bank brokerage affiliates suffered a good deal due to the continuing outflows from mutual funds. According to the Investment Company Institute, investors pulled $2.8 billion from funds in December, after $2.6 billion had flowed out in November.

The data measure net new sales, which are new investments adjusted for redemptions and reinvested dividends.

The mutual fund exodus was concentrated in bond funds, which lost $7.7 billion in December, after a $7.1 billion decline in November. Equity funds gained $4.9 billion in December.

Bank brokerages suffered because a significant portion of their investment sales are of mutual funds. And according to Cerulli Associates, a Boston consulting firm, typical sales commissions are less than 1% on Treasury securities, munis, and corporate bonds, while they are 2% to 4% on mutual funds.

But bank brokerage affiliates had little choice but to accommodate the changing mix of product sales because fixed-income securities are looking like much better investments than bond mutual funds.

"Bond funds were typically shown (to customers) because they were considered less risky or volatile," said David W. Dunning, managing director of Cleveland-based National City Corp.'s brokerage arm.

But when the bond market tanked, he added, "it soured the taste" brokers had for selling bond mutual funds because many of the funds lost money.

Furthermore, "individual investors are smart enough to know that now is a good time to buy bonds," explained Richard "Skip" Blythe, president of the brokerage affiliate of Huntington Bancshares, Columbus, Ohio.

That's because bonds and Treasuries are fairly cheap, given their relatively attractive yields.

Mr. Blythe added that investors don't seem to mind eating losses on bond mutual funds if they can transfer money into bonds and Treasuries that offer stability of principal.

The brokerage affiliate of Hibernia Corp., New Orleans, is among those still doing a steady business in stock mutual funds, said Andrew Black, vice president and sales manager for bank-based brokerage.

But the brokerage isn't totally unaffected by the changing markets. Mr. Black noted that sales tickets are "significantly smaller" for equity funds in recent months than they had been previously.

Specifically, average stock fund sales have been in bites of $12,000 to $13,000 the last two months, compared to a $27,000 average in 1993.

Drew T. Kagan, president of the brokerage affiliate of Provident Bancorp, Cincinnati, said his bank's proprietary equity funds have been selling strongly, "though not at the levels we had hoped for."

New sales helped grow Provident's Riverfront Equity Fund by $10 million last year, to $40 million, Mr. Kagan said.

But total fund sales at the brokerage affiliate dropped 16% in 1994 from the previous year.

Officials at Frost National Bank said its brokerage affiliate could cope just fine if short-term interest rates rise again, as expected.

The brokerage would benefit by selling more bonds and Treasuries, said Vernon Torgerson, a vice president and executive trust officer for the San Antonio-based bank.

The affiliate sold $6 million to $7 million of Treasuries last month, compared to only $2 million in August.

The Chicago-based brokerage subsidiary of St. Paul Federal Bank has seen its sales of Treasuries, munis, and corporate bonds jump 30% since the beginning of 1994.

The reason is simple, said Gerald W. Thomas, president of St. Paul Federal's brokerage affiliate. The best five-year CD rate in Chicago is about 8%, he said. But St. Paul customers can buy a three-year Treasury note yielding 7.6%.

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