Norwest Corp. has officially ended its clearing agreement with BHC Financial Inc. in favor of clearing its investment sales on its own.

The Minneapolis-based banking company has begun transferring its brokerage customer accounts to a new clearing system that it will own and manage. The transfer is expected to be completed in October, bank executives said. "The primary reason for doing this is to give better customer service and have better control," said Silas Mathies, an executive vice president at Norwest Investment Services Inc.

For BHC, a Philadelphia-based firm that provides brokerage accounting and back-office services primarily to banks, Norwest is the latest in a string of lost clients. Citicorp, Chase Manhattan Corp., and First Chicago NBD Corp. have each told BHC they would be terminating their arrangements with the firm.

At Norwest, Mr. Mathies said, the brokerage made the decision to self- clear as part of a plan to revamp the back-room operations of all of Norwest's investment businesses.

Geoffrey H. Bobroff, a consultant based in E. Greenwich, R.I., said most banks farm out their investment clearing work because it can be labor- intensive. But technology has helped to drive the cost down, he said, and it is likely that more large banks will consider doing it themselves.

Norwest is a leading seller and underwriter of municipal debt in its region. Its brokerage unit has 300 retail and institutional brokers that do 2,500 trades per day and serve more than 100,000 customer accounts.

Some observers said that despite its size, Norwest may have a hard time making its clearing operation cost-effective.

"It's a volume business, and (the cost of) transactions at banks that self-clear can be two to three times as high as an outside firm that does it," said Kenneth R. Hoffman, president of Optima Group, a Fairfield, Conn.-based consulting firm.

He added that "no bank that self-clears today makes the capital investments that you see at leading firms like Pershing or a BHC."

Indeed, some experts point out that clearing firms often spend millions of dollars a year to keep their accounting and tracking computer systems up to date - money that many banks are reluctant to spend on something they might not consider a core business.

Mr. Mathies downplayed the need to invest and said he expects the move will save money for Norwest by cutting the number of people it takes to make a trade. Right now, he said, "it can take up to three people to handle a trade, whereas soon we'll have just one - the rep - and everything else will be automated."

He added that if the changes go according to plan, Norwest customers will receive consolidated bank and brokerage statements. Annuity accounts will not be reflected on the statements, but the brokerage hopes to remedy that, a Norwest spokeswoman said.

At BHC, president William T. Spane would not discuss the loss of Norwest as a client, saying only that the firm would recoup the lost business through new bank relationships.

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