When National City Corp. completes its planned $7.1 billion acquisition of First of America Bank Corp. next year, the smaller bank may be calling the shots on mutual funds.

Kalamazoo, Mich.-based First of America has championed an aggressive retail distribution of its proprietary funds since their inception in the 1980s, observers said. Cleveland-based National City has only recently tried to duplicate this strategy.

"The more successful fund family has been the First of America fund family," said Geoffrey H. Bobroff, a mutual fund consultant based in East Greenwich, R.I.

First of America's executives have long been "much more focused on why they were in the funds business and the fact that they needed to be in the funds business in a more meaningful way," he added.

Though executives at neither bank company would speculate about the effect of the proposed merger on their fund businesses, experts said the new National City could leverage an expanded branch network to increase fund sales. The combined bank would have well over 1,000 branches in six states.

The sheer size of the post-merger fund complex is also expected to be a plus. Merging the banks would create a powerhouse of $12.4 billion in combined mutual funds that would put National City behind First Chicago NBD Corp. as the No. 14 banking company, jumping from its current spot of No. 24., according to Lipper Analytical Services Inc., Summit, N.J.

But First of America-with $6.8 billion of proprietary mutual funds compared with National City's $5.6 billion-has been aggressively marketing its Parkstone Funds to both retail and institutional investors.

Industry experts said First of America's funds have the more appealing asset mix. Two-thirds of the Parkstone Funds' assets are in long-term portfolios-that is, stock and bond funds. As investment adviser for these funds, the bank collects fees ranging from 0.45% of assets for a government income fund to 1.16% of assets for an international fund.

National City, by contrast, has three-quarters of its fund assets in money market mutual funds-short-term investments with much thinner margins. It collects fees ranging from 0.15% to 0.25% of assets for managing these funds.

First of America has "a more profitable mix because money market fund assets tend to be assets you don't tend to make much money on," Mr. Bobroff said.

Richard A. Wolf, chief executive officer and chief investment officer of First of America Investment Corp., said institutional funds make up about 75% of the bank's portfolio and retail funds make up the remaining 25%.

"In the last five years, we have been trying to grow the sales of mutual funds through the retail delivery system of the bank," Mr. Wolf added.

First of America, Mr. Wolf said, now has 80 to 90 salespeople who "deal with the retail side" of selling mutual funds to "bank customers or other people in the community" through First of America's network of 500 branches.

By contrast, National City has 200 brokers working through a network of about 900 branches. But those brokers, according to Joseph C. Penko, vice president for mutual fund administration at National City, have been selling more third-party funds than proprietary portfolios, known as Armada funds.

In the last year, he said, the bank has made serious efforts to change course and promote its funds through retail channels.

"We have geared up marketing and sales support now with Armada fund wholesalers and a marketing team we didn't have a year ago," Mr. Penko said. "We are just now getting the stock and bond funds through the channels."

"It is our goal in 1998 to change the mix of an overwhelming predominance of money market funds in the retail channel and start to move that mix so that eventually, in the long-term, we are selling more long- term funds," he added.

To that end, the bank switched distributors this year, dropping First Data Investor Services for SEI Investments.

First of America uses Bisys Funds Services, one of the largest companies in the distribution market. Neither bank would speculate which company would win the combined bank's distribution business.

Joy Montgomery, president, Money Marketing Initiatives, Morristown, N.J., said the merging banks' funds should mesh well. The combined bank will have "a much stronger lead on the equity side from one set of funds and stronger lead in the money market funds from the other. And my guess is they are both mediocre on fixed income."

Both banks have room to improve marketing and distribution of their proprietary funds, said Louis S. Harvey, president, Dalbar Inc., Boston, a financial services research firm.

"The success in long-term funds really lies not in launching the funds but in really how effectively you distribute them," he said. "I haven't seen any of these guys step up to the plate and play hardball."

And proprietary funds, he said, are expensive to sell.

"Even though you are collecting a much higher fee," Mr. Harvey said, "it costs a fortune to explain why your long-term fund is better than Fidelity's or Putnam's or Vanguard's."

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