Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, June 20, 1993 TAG: 9306180018
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
But don't feel sorry for the banks; they're enjoying the best of both investment options.
Not only are they newly into mutual fund sales in a big way, they also are profiting because investors are shifting cash to other accounts - at lower interest.
The American Banker, an industry newspaper, has reported that banks now sell 14 percent of all bond and equity funds.
Of that number, 60 percent are managed by mutual fund companies, but the remaining 40 percent are funds created and managed by the banks themselves.
The Investment Company Institute, the mutual fund industry's trade association, found that banks sold $23 billion in funds in 1991 and about double that amount in 1992.
Money to buy these funds obviously must come from someplace, and common sense suggests that it flows out of bank accounts.
Indeed, that's true in the sense that bank deposits are flattening. Deposits at the largest banks grew a measly 0.2 percent last year after gains of about 6 percent a year in the 1980s.
But people are avoiding locking up their money at low interest in long-term certificates of deposit.
"Most people are choosing not to decide" what to do with their money, said James Eads, president of Signet Financial Services.
Total deposits are slightly up at Signet, he explained, but the money is moving out of CDs and into money market, savings and checking accounts.
These liquid accounts cost the banks less in interest payments than do CDs.
"A lot of people are sitting on the sidelines" when it comes to investing, Eads said.
Signet tracked some of its matured CDs and found that only something over 20 percent actually left the bank.
Another 4 percent went into bank mutual funds. Yet, Eads said, that represented 60 percent of Signet's newly burgeoning brokerage business, which is generating fee income for the bank.
In 1990, Signet created six funds of its own, which constitute most of its mutual fund business.
First Union opened its first fund in 1985 and now has built up to nine of them. Four more will open in July.
Next year, First Union will set up mutual fund sales representatives in all of its branches.
Richard Wagoner, head of First Union's Capital Management Group, said its proprietary funds crossed the $3 billion mark in assets this month.
Although First Union is losing CD money, it too is making gains in the average size of money market, savings and checking accounts.
Although it's impossible to track specific dollars, he said, many people appear to be "parking" their money until interest rates go up.
Deposits overall have risen recently, he said, but mutual funds are growing five times as fast.
Central Fidelity Bank introduced its CFB Market Watch funds last February. Rick Arthur, product manager, said they were created because so many bank customers wanted to invest in them.
Arthur called customer response enthusiastic. Unlike most other banks, Central Fidelity has run a newspaper ad marketing them to the general public.
"This is what the market now wants," said Charles H. Rand, executive vice president for consumer services at Crestar Bank.
More than a third of all households own mutual funds, he said, describing them as "the investment vehicle of the '90s."
Crestar launched its family of nine CrestFunds through its branches only last month.
Like some other banks, Crestar offers access to CrestFunds through automated teller machines. And customers can get a consolidated monthly statement showing bank and mutual fund transactions.
"It's a business we've got to be into," Rand said. All major banks offer funds or plan to offer them, he added.
From a business standpoint, Rand said, banks realize income from the funds.
There's the sales charge for the investment banking division, he explained. And the trust department earns an annual fee for managing the funds.
Investors, he said, will buy funds more readily from banks than from other sources for two reasons.
One is the convenience of the branch bank, where they are accustomed to handling their finances. The other reason, Rand said, is that "people very much trust banks."
That historic trust, he said, "tends to work in favor of banks."
Mag Poff covers banking, personal finance, insurance and advertising for the Roanoke Times & World-News.
by CNB