Magazine article American Banker

Delaware Aims to Lure Funds with Tax Break

Magazine article American Banker

Delaware Aims to Lure Funds with Tax Break

Article excerpt

Delaware is rolling out the red carpet to mutual funds, and credit card powerhouse MBNA America may be the first to accept the invitation.

MBNA is eyeing its 8.5 million cardholders as potential customers for funds supplied by companies like Dreyfus and Fidelity.

The bank would act as distributor, approaching cardholders through mass mailings, said Todd Veale, MBNA's first vice president for strategic planning. Mr. Veale declined to disclose additional details, saying the proposal "is still in its talking stages."

Favorable Tax Climate

If MBNA does choose Delaware as home for a distribution program, it would be the first company to take advantage of the state's recent decision to dispense with income taxes for mutual fund companies and businesses that handle distribution and other services for them.

Delaware's division of revenue is looking for a test case, such as MBNA, to trigger the new exemption, state officials said.

Delaware, already home to MBNA's credit card unit, does indeed appear to be the front-runner for the bank's mutual fund program. MBNA also has operations in Georgia, Maryland, and Texas.

But "in considering where we would want to set up the new operation, any sort of tax benefits will be looked at favorably," Mr. Veale said.

MBNA is among those that have caught wind of Delaware's efforts to make itself accommodating to mutual funds.

Card Issuers Lured in '80s

The state is hoping to repeat the success it had in the 1980s, when credit card issuers flocked there to take advantage of favorable interest rate and fee rules.

The recent decision to target mutual funds "was a natural step," said Nina Keesling, a financial services specialist in the state's development office. "We looked for the next big thing and saw that clearly it was mutual funds. …

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