Fleet Makes Big Buys To Become Major Force

Fleet Financial Corp. is fortifying its investment business through acquisitions in a bid to make it one of the most formidable armadas in the business.

The Boston-based bank bolstered its mutual fund and brokerage divisions this summer when it bought, in quick succession, asset manager Columbia Management Co., Portland, Ore., and Quick & Reilly Group.

Columbia manages some $20 billion of assets, and Quick & Reilly brings Fleet the country's third-largest discount brokerage, as a securities clearing firm and a specialist trading firm. This year's acquisitions marked the bank's first in the investment business.

"This is one of the most attractive businesses this company is in," said Gunnar Overstrom, vice chairman. Fleet's executives identified the investment business in the early 1990s as an area ripe for growth, Mr. Overstrom said.

Banks and other acquirers have ponied up hefty prices for asset managers, said investment consultant Kenneth Kehrer, Princeton, N.J. They may eventually have a difficult time earning attractive returns on these deals, he said.

"Companies paying these high prices appear to be doing it for strategic reasons and will suffer through dilution of earnings to get there," Mr. Kehrer said.

Fleet executives, however, are confident the investments will pay off. Mr. Overstrom and Robert L. Ash, managing director, plan to sell Fleet's investment products to its current banking customers, as well as customers who came to Fleet through acquisitions.

The bank's recent acquisitions complement its purchases of Shawmut National Bank and National Westminster PLC's U.S. branches, Mr. Overstrom said.

Each of the bank deals brought not only revenue streams but "customer lists we think we can turn into investment customers," Mr. Overstrom said.

Turning customers from these other institutions into investment customers could be challenging, said Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I.

Quick & Reilly customers, for example, chose a discount brokerage because they are self-directed investors, Mr. Bobroff said, and may therefore be resistant to product pitches from their broker's new parent.

Fleet's current brokerage staff will move under the Quick & Reilly umbrella, Mr. Overstrom said, and into the brokerage's 116 offices in 33 states. The brokerage will add the words "A Fleet Company" to the end of its name.

Columbia, however, will remain separate from the bank, nor will it add Fleet's name to its own. Mr. Overstrom attributed that decision to the nature of the firm's customer base.

The Columbia name "is important to those institutional customers because they bought Columbia's investment process and investment performance, and we want to give them every assurance we're not going to change what they bought," Mr. Overstrom said.

The bank may eventually decide to put all of its asset management business under one roof, he said. For now, the bank's Galaxy Funds will remain separate from the Columbia Funds.

Retail investors can be more receptive to buying funds from a bank. At least that's what Mr. Ash hopes.

Mr. Ash joined Fleet in February as managing director of Fleet Investment Management. Mr. Ash is one of two executives who replaced Michael J. Rothmeier after he resigned last year.

Mr. Ash's mission, he said, is to lead the bank's cross-selling efforts.

"All of our products are financial products, and all our customers are looking for financial solutions," he said. That should make Fleet's banking customers amenable to buying its investments.

But only 4% of Fleet customers currently own Galaxy funds, Mr. Ash said. Increasing the penetration into the bank's six million retail and 300,000 small-business customers is high on his list of priorities, Mr. Ash said. But he will look beyond the bank for customers, too, he said.

"We've got to look at our broad footprint, not just at bank customers," Mr. Ash said. With that in mind, the bank is putting its name on the Galaxy Funds, which will be called Fleet Galaxy Funds in local marketing, he said.

The ratio of Galaxy Fund sales to assets is 6%, according to Financial Research Corp., Boston. That is in line with the performance at other banks that sell proprietary mutual funds, said Neil Bathon, president of Financial Research. Fleet's equity funds - which boast six with four-star or five-star ratings from Morningstar - have a 9% sales ratio, against 8% for the banking channel.

Cross-selling is difficult, Mr. Ash concedes, but Fleet is well positioned to succeed.

"All of our products are financial products, and all of our customers are looking for financial solutions," Mr. Ash said. With that in mind, Fleet is upgrading its technology to provide its customers 24-hour access to investment information and trading capabilities, Mr. Ash said. That capability should be available by the end of 1998, he said.

The technology upgrade is important to tap at least one of the three customer groups Mr. Ash and Fleet have identified as important investment customers.

The three groups are investors almost ready to retire and are still socking away savings; Baby Boomers who are just starting to think about retirement savings; and Generation X customers in their 20s and 30s who are the most likely to buy investments through nontraditional means, Mr. Ash said.

In addition to expanding distribution to customers outside the bank, Mr. Ash has his eye on customers outside the United States, he said.

"Anyone not looking at opportunities for global distribution is not paying attention," he said.

Before joining Fleet in February, Mr. Ash's previous positions had an international bent. His last job was at Warren Management Consultants, where he helped companies like J.P. Morgan and New York Life with their domestic and international distribution strategies.

Before that, he established AIG Asset Management Services, which formed alliances in Asia and Europe in order to expand American Investment Services' asset management business.

"When Asia is looking for U.S. products, we'll take advantage of that," Mr. Ash said. His first priority is the domestic market, but global distribution is not far behind, he said.

"It's a competitive and saturated market in the U.S.," he said, "so I've got terrific peripheral vision" to keep an eye on many markets at the same time.

He attributes his fine-tuned "peripheral vision" to his six-and-a-half years as a Navy pilot. Indeed, his speech is rife with military analogies.

"Just like flying a jet at supersonic speed, you have to anticipate far in advance where your plan is going to be," he said of his current assignment. "When I build a mutual fund company, I don't build it for today," he said. "You have to build it for five to 10 years down the road or it'll be antiquated."

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