Fleet Financial Group's planned merger with Shawmut National Corp. is likely to have a dramatic effect on both companies' investment businesses.

While some business lines, including mutual funds, are likely to benefit by getting bigger, trust and private banking could suffer from staff cuts and other management changes, experts said.

A Fleet spokesman said the banking company, which will retain the Fleet name and base itself in Boston, is not ready to say how it will manage its investments businesses. But the activities clearly will receive senior management attention.

Gunnar S. Overstrom Jr., currently Shawmut's president, is slated to be a vice chairman of the new institution, responsible for consumer banking, small business lending, and investment services.

The merger, which is expected to be completed in the fourth quarter, would create a banking company that ranks among the country's 10 largest, with more than $80 billion in assets and 900 branches throughout the Northeast.

A Fleet spokeswoman said it hasn't yet been decided who underneath Mr. Overstrom would run investment services.

But the leading contenders are the executives who now handle these responsibilities at Fleet and Shawmut.

At Fleet, this is Richard H. Jones, president of Fleet's investment services unit. At Shawmut, it is executive vice president Michael J. Rothmeier.

Both men "are very articulate and highly regarded in the industry," said W. Christopher Maxwell, executive vice president of Keycorp, Cleveland.

Mr. Jones is credited with spearheading Fleet's distinctive approach to mutual funds and annuities. Fleet is one of only a handful of banking companies to operate a no-load mutual fund family, with $5 billion of assets. Fleet was also the first commercial bank to launch its own variable annuities.

Mr. Rothmeier is known for leading Shawmut's entree into retail investment sales. He is also credited with resuscitating an institutional money management business that Shawmut had all but abandoned before Mr. Rothmeier came to the banking company from Fidelity Investments in 1992.

Mr. Rothmeier also oversaw Shawmut's launch of a proprietary mutual fund family, which now has $1.3 billion of assets. A sensitive question is whether or not Fleet will stick with its no-load strategy after the merger, since Shawmut's funds charge sales loads to retail investors.

Fleet will also have to decide which nonbank company will distribute and underwrite its mutual funds. Fleet currently uses 440 Financial, Worcester, Mass. Shawmut relies on Federated Investors, Pittsburgh.

Assuming these transition issues are handled well, experts said, the merger should allow Fleet to make more money selling its mutual funds.

"With more resources, they'll be more prepared to compete effectively on a regional basis," said Avi Nachmany, an analyst with Strategic Insight, New York.

But a handful of consultants and former Fleet officials warned that the story in private banking and trust could be much different.

Both banking companies rank among the country's largest in these businesses, with Fleet outpacing Shawmut. At the end of 1993, Fleet had $31.8 billion of trust assets; Shawmut had $24.8 billion.

The industry sources, who asked not to be identified, said that Fleet's trust and private banking businesses have been hard hit by a series of staff reductions, departures, and reorganizations since 1991.

The changes have caused Fleet to lose several trust accounts because of a perceived decline in service quality, these observers added.

"They've torn it to shreds," said a former senior Fleet official, who now works for a competitor of the banking company.

The merger with Shawmut could lead to further damaging instability, the consultants and bank executives warned. Indeed, Fleet said it expects to eliminate one-tenth of the combined banks' work force after the merger. Staff cuts are expected to hit most areas of the bank, including trust and private banking.

But Amy J. Errett, chairman and chief executive of bank consultancy the Spectrem Group, San Francisco, said the merger could also boost Fleet's trust capabilities. She said Shawmut's strength in securities processing will complement Fleet's well-regarded money management expertise.

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