The mutual fund business makes good sense for banks, but the importance to the bottom line is still unclear, two top bank analysts said.

George Salem of Prudential Securities and Carole Berger of C.J. Lawrence Inc. told more than 300 bankers at American Banker's Bank Mutual Fund Conference in New York last week that sluggish loan growth makes alternative products like mutual funds attractive.

Mr. Salem gave the stronger endorsement. Banks have "an absolute mandate" to build fee income, he said. "That's what investment products are doing for you."

Jet Plane Versus Buggy Whip

Mutual funds, he added, are clearly more appealing to consumers than bank deposits.

"I think it's a jet plane compared to a buggy whip," he said.

Even market jolts won't cause much money to flow from mutual funds back into deposits, he said.

Mr. Salem. however, said be, does harbor one big concern:

"What the hell is the profitability of this stuff?"

Both he and Ms. Berger complained that bank accounting methods make it difficult to see just how much money banks are making in funds.

"I still have a lot of open-ended questions," said Ms. Berger. For banks. investment products are still a fledgling activity and will be watched carefully, she said.

After hearing bankers at the conference discuss taking trust money to seed proprietary mutual funds. Ms. Berger suggested that banks may simply be taking money from a high-profit business and using it as a loss leader for mutual funds.

"I've got to start worrying about cannibalization of your trust departments." Ms. Berger said.

"I'm not sure banks aren't just finding another way to erode profitability," she added.

Even many bankers don't know the profitability issues involved with their programs. Mr. Salem said. Often. he said bankers can't answer such simple questions as how much it costs to move $100,000 from certificates of deposits to mutual funds, and how that movement would affect on profit-and-loss statements.

Hamburger Helper

Mr. Salem said that many banks that have built fund assets through trust conversions lack significant retail sales. "They use all the Hamburger Helper and don't use the hamburger," he said.

Still, using another food metaphor, Mr. Salem thinks customers want choices.

Having just a couple of deposit products is like offering the customer a choice between vanilla and chocolate ice cream Mr. Salem said. But offering just one family of mutual funds is like bringing the customer into an ice cream parlor with "dozens and dozens of delicious. quality flavors."

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