Magazine article American Banker

Mutual Funds' Impact on Banks' Bottom Lines Has Been Slight So Far

Magazine article American Banker

Mutual Funds' Impact on Banks' Bottom Lines Has Been Slight So Far

Article excerpt

WASHINGTON -- While banks are enthusiastically expanding their mutual fund and retail brokerage businesses, the impact on bottom lines has been quite small so far, a Federal Reserve survey shows.

In a poll of 55 of the nation's largest commercial banks, the Fed found that just 1% of pretax net income had come from selling retail investments.

And among the 48 banks in the survey that manage mutual funds, management fees generated less than 1% of pretax net income.

The findings didn't surprise observers, who said banks are looking to mutual funds for strategic purposes rather than for quick profits.

Way to Avoid Being Vulnerable

Banks want to offer mutual funds so they can "provide the full spectrum of services to their customers, rather than have them vulnerable to somebody else picking them off," said Federal Reserve Government John P. LaWare.

As the business matures, only a handful of players can expect to get more than 10% of their income from mutual fund sales and management, said Joy P. Montgomery, president of Money Marketng Initiatives in Morristown, N.J.

Those are likely to be big banks that grow their business by purchasing fund companies, she explained.

Of Strategiv Importance

But strategically the business will remain important, even if profits don't pick up.

"It's going to be the price of maintaining a customer relationship," Ms. Montgomery said.

The survey marks the second time in a year that the Fed has closely examined the bank mutual funds business.

The Fed has been exploring the nascent field because of its implications for both banking regulation and monetary policy. …

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