Banks may be newcomers to the mutual fund business, but they are outpacing the pack in asset growth.
In the 12 months through June 30, banks boosted the mutual funds assets they manage by 36%, to $190.9 billion, according to data compiled for the American Banker.
That was well ahead of the 23% growth recorded by the fund industry overall, which had $1.803 trillion of assets at midyear.
While the gains underscore bank's growing involvement in the mutual fund business, it is still unclear whether banks can reap substantial profits by managing mutual funds, said Geoffrey Bobroff, a senior vice president at Lipper Analytical Services, which assembled the data for the American Banker. (Table begins on page 12.)
Fees Being Waived
He noted that banks have been waiving investment advisory fees as they build their fund businesses.
"As late entrants, banks have had to engage in subsidization to maintain competitive returns," Mr. Bobroff said.
"At some point, it may come home to haunt the bank executive if true revenues cannot be achieved from this venture."
Lipper ranked 103 bank and thrift holding companies that act as investment advisers to mutual funds, comparing their assets in the second quarter with assets three months and one year earlier.
The Leader Slides
The ranking, which will be updated quarterly, showed nearly universal gains in fund assets, though there was a striking exception.
PNC Bank Corp., which took first place with $18.9 billion of fund assests, experienced a nearly 40% decline from mid-1992 as institutional investors seeking higher yields shifted assets into other investment, including Treasury securities and funds of rivals.
"Our trading volume is about $5 billion a day," said Thomas H. Nevin, president of PNC Institutional Management Corp.
"People will move that kind of money, believe me even for a basis point."
Bank America Gains
Closing in on PNC, Bank-America Corp. ended the second quarter with $18.3 billion of assets, up from $11 billion a year earlier. Like PNC, Bank America specializes in running money market funds for institutional clients.
Bank America's growth has been fueled by the strong performance of its Prime Fund, a money market portfolio. The bank has also stepped up its retail marketing and is developing new funds.
Third-place honors went to retail-minded Nations Bank Corp., which broke into double digits with $10.5 billion of fund assets.
Much of the money came from conversions of trust assets, as Nations Bank geared up for a big sales push via its joint venture with Dean Witter Financial Services, Mr. Bobroff said.
Though a few banks have managed mutual funds for as long as 20 years, most of the 103 banks with proprietary funds have entered the business in the past five years
On attraction: the invesment advisory fees that banks can collect. "Every day you turn on the lights and you're assured a stream of income," Mr. Bob Bobroff said.
By contrast, banks that sell only other companies' funds earn only sales commissions.
Consumer demand for alternatives to low-yielding deposits is also driving banks into the fund business.
"Every banker in the country has woken up to the fact that his customer has a need for mutual funds," said David B. Dyche, director of financial industries at Arthur D. Little Inc., New York.
But while consumers are developing an appetite for fixed-income and equity funds, the data showed that the banking industry is still heavily tilted toward money market funds.
Some $128.2 billion, or about two-thirds of the money invested in bank-managed funds, was in money funds. In comparison, money market funds make up about 30% of the fund industry's $1.8 trillion of assets, according to the Investment Company Institute.
Some industry experts foresee changes, though.
"We are seeing a shift into nonmoney-fund sales," said Richard Stierwalt, president of Concord Holding Corp., a New York mutual fund distributor that has helped several major banks boost their fund sales.
One reason, he said, is that "banks are maturing in their retail delivery systems. They're going to be selling more and more product."
Though banks had $29.4 billion of equity fund assets under management, only 10 had more than $1 billion each. The leader was NationsBank, with $1.9 billion of equities.
Taxable fixed-income funds totaled $23.5 billion. Tax-exempt fixed-income funds -- that is, municipal bond funds -- had $9.7 billion of assets. Wells Fargo & Co. led in both categories, with $2.9 billion of taxable funds and $959 million of tax-frees.
In a clear sign of bank's growing stature as fund managers, the Lipper data showed that 29 banks have $2 billion or more of mutual fund assets under management. That places them squarely within the top 100 mutual fund companies, Mr. Bobroff said.
|A Significant Player'
"Even though the banks are still money-fund dominated, they are very much a significant player in the industry," he said.
"They've got to grow assets from the current level, and they need to diversify the assets into products that are less interest-rate sensitive," Mr. Bobroff added.