Fund companies seen as engines of growth.

With scant growth expected in their core business, it's not surprising that bankers are looking to snap up mutual fund companies, says James M. McCormick, president of First Manhattan Consulting Group.

"Banks are in a low-growth business, but they are the gorillas of capital," Mr. McCormick said in a recent interview. "You've got the capital but no growth? You buy growth."

Indeed, Mr. McCormick says the banking industry has such abundant capital that it could theoretically acquire the whole mutual fund management business. He has been laying out his arguments in presentations to top banking executives.

"The market capitalization of U.S. banks is now around $400 billion," Mr. McCormick said. "The entire value of the retail mutual fund business is less than 5% of that."

For now, banks seem content to make a few strategic acquisitions. In recent weeks, regulators have given the green light to Mellon Bank Corp.'s purchase of the huge Dreyfus Corp. and First Union Corp.'s acquisition of a much smaller firm, Lieber & Co., manager of the Evergreen Funds. And Fleet Financial Corp. is waiting for approval to acquire the IBM Funds (see below).

"I would see these being the first of several major purchases of mutual fund companies by banks," Mr. McCormick said, adding that he detects brisk interest among the top 50 banks.

Mr. McCormick goes so far as to assert that banks eventually will own most of the mutual fund and regional brokerage business -- a claim that fund executives vigorously dispute.

"Banks are going to be great outlets, but I don't think there are going to be that many that master the art of running money," said Paul Hondros, president of Fidelity Institutional Services Co., a unit of Fidelity Investments, Boston.

The Vanguard Group has stepped up its attack on International Business Machines Corp.'s plan to sell its mutual fund business to Fleet Financial Group's investment advisory arm.

Writing to the chairman of the Securities and Exchange Commission, Vanguard chairman John C. Bogle charged that IBM's communications about the deal to its shareholders were "deceptive and misleading." He asked the SEC to direct IBM to revise and redistribute its proxy statements before June 15, when IBM shareholders are to vote on the sale.

Among his complaints: that IBM's proxies, which refer to an "alternative manager" for the funds, should have identified Vanguard as Fleet's rival. By omitting Vanguard's name, IBM deprived fund shareholders of knowing whether the rival was "a 'fly-by-night' marginal fund operator or [I think it is fair to say] a well-respected firm,'" Mr. Bogle wrote.

Thomas Howe, the head of Fleet Investment Services, said he expects the deal to proceed. "Unless there is some step taken by the SEC, why would it change anything?"

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