Magazine article American Banker

Moody's Sees a Growth Business in Rating Bank Mutual Funds

Magazine article American Banker

Moody's Sees a Growth Business in Rating Bank Mutual Funds

Article excerpt

As banks vie for a bigger share of mutual fund assets, more are seeking ratings from credit rating agencies.

Moody's Investors Service, one of the biggest, was monitoring 29 bank-managed funds as of Sept. 30, and Moody's executives say business is picking up briskly.

Most of the growth has come from large banks that seek rating for institutional money market mutual funds.

According to Moody's, fully half of the mutual funds it rates are designed for institutional investors, while just a handful -- one in 10 -- are for retail investors. The rest are funds in which both institutional and retail customers may invest.

The reason for the imbalance is that many institutional and trust clients can invest only in securities that carry ratings. By establishing ratings, banks can also jump-start trust asset conversions.

"Rated funds provide a quality assurance and perception that is highly valued in the institutional funds marketplace," said Joseph Demmler, vice president of mutual fund services at Bankers Trust Co., New York.

A Step into Retail

Ratings also help banks build a steady stream of fee revenue, which can be used to finance retail distribution. "For many, it's an initial step into the retail market," said Stephen A. Schoepke, a senior analyst with Moody's. Costs are based on the amount of assets and the number of portfolios.

The banks that have taken the plunge into the rating game are mostly the nation's largest. …

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