The word "mutual" may take on a double meaning as banks ponder their future in the mutual fund business.

A movement is afoot for banks in the business to band together the way they did a generation ago in credit cards.

Keefe Bruyette & Woods, a New York investment bank, and Cypress Holding Co., a Boston start-up venture, are each trying to persuade banks with small mutual fund businesses to scrap their solo efforts and pool their resources.

By seeking strength in numbers, these companies say, banks can shed many of the costs and hassles of managing mutual fund units - and gain the market power needed to compete with heavyweights like Fidelity Investments.

"Banks are finally recognizing they might not have the skill sets or the scale to build this business," said Emmett J. Daly, a senior vice president at Keefe Bruyette. "They'd rather own a portion of a large, better-run company."

Keefe and Cypress are currently asking banks who have fund operations with less than $1 billion in total assets to join their proposed fund cooperatives. Under both companies' plans, participating banks would pool their fund assets into a single consortium in which they could retain an equity stake.

There are strong precedents for such an approach. For instance, banding together under the banners of Visa and MasterCard helped banks to transform their credit card businesses from a sleepy sideline into an engine of profitability. Automated teller machine networks, like the New York Cash Exchange, followed a similar cooperative model.

The new fund families would have at least $10 billion in assets, contributed by a dozen or more individual bank complexes. While neither Keefe nor Cypress has yet to seal a contract with a bank, Cypress expects to announce its first deal by yearend.

"The banks hate to admit that they're not experiencing the success that they'd hoped to," Keefe's Mr. Daly said. "This is a way for them to improve their position without disengaging from it."

The two proposals come at a time when banks are increasingly questioning their ability to compete in the mutual fund management business. After spending millions of dollars to launch their own mutual funds in the early 1990s, many banks today are wondering just how many assets they have to bring in to offset their operating expenses.

Most experts peg the figure at $1 billion, though some put it as high as $10 billion. Yet of the 107 banks and thrifts that now manage proprietary funds, only 60 have broken the $1 billion mark, according to Lipper Analytical Services, Summit, N.J.

"Something has to give, because a lot of people are bleeding," said Geoffrey H. Bobroff, a mutual funds consultant based in East Greenwich, R.I. "There needs to be some thoughtful disposal of ... lots of funds out there that shouldn't have been started in the first place."

Bankers who have been struggling to build their fund businesses say they recognize that there is much to be gained by pooling their assets, including efficiencies of scale and the ability to create sophisticated advertising campaigns. Still, many are loath to sacrifice the families they worked so hard to build for their banks.

"It's interesting, to say the least, and it certainly has merit for the smaller complexes," said Michael Allen, senior vice president in charge of the $824 million asset fund family at Trustmark National Bank, Jackson, Miss. "The downside is that a bank loses the identity of its own funds."

Under the plan being marketed by Keefe Bruyette & Woods, banks would receive equity stakes in a new fund cooperative based on the amount of assets they contribute. They would also be given seats on the new fund company's boards.

Keefe also envisions giving star bank money managers a substantial role running money for the new complex.

Meanwhile, Cypress Holding, which opened its doors in January, plans essentially to buy banks out of the fund business, paying for their assets and offer a trailing administrative fee of 25 basis points. The company is backed by Berkshire Partners, a Boston-based venture capital firm.

'We're prepared to take the guy out financially and start clean with a new product," said Bradford K. Gallagher, a former Fidelity executive who is president of Cypress Holding. Cypress would consider negotiating equity stakes in the ongoing business not to exceed 5%, he added.

Cypress plans to announce later this month a pact with institutional money manager Standish Ayer & Wood to run the core portfolios of the new fund company. But a few bank fund managers could win subadviser roles for selected funds.

Amcore Financial Services, a Rockford, Ill.-based bank with $574 million in proprietary fund assets, has already been courted by Cypress and expects to meet with Keefe this month. But bankers there say they are not inclined to give up their mutual fund business any time soon.

The portfolios' money managers are a core part of the bank's investment management team and need to be retained to serve Amcore's trust banking clients, they said.

"We're making money and feel we can deliver a competitive product in our marketplace," added Alan W. Kennebeck, group vice president at Amcore.

Yet executives at both Cypress and Keefe Bruyette & Woods are betting that many bankers will eventually see economic advantages to banding together. One of the biggest benefits may come in the area of advertising.

Because their funds generate scant income, many small banks spend little to promote their portfolios, even as experts warn that heavy advertising is vital to a fund program's success.

"If I get to size - over $10 billion (in assets) - I can spend about 20% of disposable income on marketing and still have a strong return on investment," Mr. Gallagher boasted.

Observers said the recent volatility in the stock market could help convince more banks to sign on with one of the proposed programs, as their fund sales grow sluggish. But even earlier, some bankers were searching for an exit strategy.

Indeed, many bank funds remain dependent on significant subsidies to post competitive performance results. Banks continue to reimburse their funds for management and administrative costs more often and at higher levels than their nonbank competitors.

Banks, for example, waive fees on bond funds - where bloated expenses ratios can significantly depress returns - almost twice as often as their nonbank rivals, according to data from Lipper Analytical Services, Summit, N.J.

"The better banks do not want to use mutual funds as a loss leader," Mr. Daly said.

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