Bank brokerages are realizing improved profit margins this year and are also selling investment products to bigger slices of their customer bases, according to a study released last week by the Consumer Bankers Association.

Profit margins for bank retail securities sales improved to 31% for the first quarter of 1996, up from 21% for the same period the year before, according to the study conducted by Kenneth Kehrer Associates.

"Despite all the bad-mouthing we've heard, banks are doing a really good job getting good margins out of the business," said Kenneth H. Kehrer, president of the Princeton, N.J., research firm.

The study also showed that banks are making inroads in selling to their depositors.

In the first quarter of 1996, the surveyed banks had annualized gross revenue from investment product sales of $1,005 for each million dollars in bank deposits. That was up 7% from the last quarter of 1995 and 48% from a year earlier.

Both findings underscore the growing importance of the nontraditional business to retail-oriented banks.

When investment product profits margins are compared to deposit base, the gains are the most apparent, Mr. Kehrer said. Annualized net income from consumer investment rose to $238 per million of retail deposits during the first quarter of 1996, up from $81 per million during the same period the year before.

In the CBA study, based on questionnaires completed by 25 banks, profit margins were calculated before including corporate overhead, which would tend to overstate the good news for banks.

Even when overhead is added in, several bank brokerage chiefs said, banks would have greater significant cost advantages over their nonbank rivals.

Banks' traditional focus on packaged securities products, such as mutual funds and annuities, almost guarantees better profits per transaction, they said.

"Organizations that have limited programs will have a higher profit margin than a full-service firm," said Joel Calvo, president of PNC Brokerage Corp., Pittsburgh. Mr. Calvo said his own brokerage's margins were consistent with the study's findings, even though about half of its transactions are not packaged products.

And banks have to spend less money prospecting for investment products business.

"It stands to reason that bank brokerages would run at a better margin," said Jeffrey Rigsby, brokerage chief at Cal Fed Bancorp, Los Angeles. When it comes to finding customers, he said, we've got a "a better acquisition cost from the get-go."

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