Banks seldom lose institutional clients when they merge. When it does happen, departures of investors are usually because of a change in the core strategy of the successor banking company or to following defecting portfolio managers.

But now, politics may be playing a role in investors' decision-making process. In a letter last month to Edward Crutchfield Jr., the chairman of First Union Corp., a state senator in New Jersey pointed out that the state's pension fund has $50 billion in custody with First Union Corp. and owns $150 million of the Charlotte, N.C.-based bank's stock as attention getters.

The letter questioned how many jobs would be lost in New Jersey as a result of First Union's moving its Northeast regional headquarters to Philadelphia, where it is acquiring CoreStates Financial Corp. Sen. Richard J. Codey, D-Essex County, wrote, "New Jersey's stake in this merger is further reflected" by its status as a shareholder and customer. The senator did not return calls requesting further explanation. A spokeswoman for First Union said the bank "let him know that in many of the areas that he sought information about, we have not come up with responses." She declined to address any implicit threat of the state's pulling its account, adding that First Union does not comment on specific customer relationships.

Meanwhile, Philadelphian politicians, fearful of branch closings and irked by an indication that First Union would spread 3,000 jobs over New Jersey and Pennsylvania rather than put them all in the city as earlier stated. A councilman intruduced a bill to blacklist First Union as depository for city funds.

As many areas around the country lose their last independent banking companies, the level of political sensitivity to mergers could be rising. But actually yanking a government account because of local civic concerns would be an aberration, observers said.

"I cannot really think of any change in trust and custody - the high-end pension business - where a change was driven by political motivation," said Frederick H. Settelmeyer, senior vice president of client services for the custody arm of Mellon Bank Corp.

"Fees are probably the biggest driver," to move to another custodian, he added.

Concerns about political repercussions are discussed by merger partners in general, but rarely do banking company managements discuss nitty-gritty details such as a potential loss of government customer, during merger talks, said an investment banker.

"What does come up is political fallout if there is a high level of job loss. In the executive suite, I doubt they break it down into components. They just in general try to avoid it," said Dana C. Troxell Jr., vice president in the financial institutions group of Goldman, Sachs & Co.

"Even if there is political fallout, it is very rare for that fallout to be seen in investment management accounts," Mr. Troxell said.

Mergers themselves, by virtue of bringing new policies, procedures and prices to a region, do automatically trigger reviews of custodians and money managers by clients. Pension funds often put out a request for proposals from competing custodians, Mr. Settelmeyer of Mellon said.

"Invariably, when you go through an acquisition, they do review the bidding. Somebody might offer lower fees and a better product," he said. "The driver is not going to be solely political, they really need to make sure assets are in safekeeping."

That kind of determination is not likely to be made by a politician, said Mr. Troxell of Goldman Sachs.

"It's rare. The guys who are in charge of picking the managers are fiduciaries, not the people who are running for reelection," he said. "It's unusual to see clients of any type pulling contracts as a result of a merger."

Pension custodians agreed. More often than not, a custodian's competence is in question, not its holding company's strategic decisions, said Daniel J. Wroblewski, president of First Trade Union Trust Co., Los Angeles, a custodian of labor pension funds.

"If investment managers have bad experiences with certain custodians, they'll tell their client, 'This trust department is really lousy.' Investment managers can hurt more than anything else," he said.

Mergers can result in dropping services from the menu, as was the case with NationsBank Corp.'s acquisition of Boatmen's Bancshares, St. Louis last year.

Local pension clients of the former Boatmen's Trust Co. could not stay with NationsBank because the Charlotte, N.C.-based company exited the custody business, selling its institutional trust portfolio along with that of Boatmen's, to Bankers Trust New York Corp.

But consolidation in the custody business itself, aside from the larger banking company mergers and acquisitions, could limit choices and make it harder for local governments to stay solely with local providers.

Bank of New York Co., Chase Manhattan Corp., Mellon, and State Street Corp. have been acquiring in recent years the institutional trust portfolios of other banking companies that decided to get out of the business.

"Since the big boys are buying the little guys out and buying each other out, eventually there will be six or so top-tier custodians," Mr. Wroblewski said.

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