Magazine article American Banker

Many Smaller Banks Beating a Retreat from the Mutual Funds Battleground

Magazine article American Banker

Many Smaller Banks Beating a Retreat from the Mutual Funds Battleground

Article excerpt

Signs are cropping up that the investment products gold rush is coming to an end at community banks.

Many small banks are dismantling mutual fund and annuity sales programs they scurried to build just a year or two ago. While other small banks are launching sales efforts, the retreats don't bode well for small banks' presence in the business.

What's going wrong?

James A. Robinson, president of Riverside (Calif.) National Bank, puts it bluntly: "We didn't even come close to breaking even."

Mr. Robinson said his $205 million-asset bank grossly overestimated its potential when it launched a sales program in December 1993.

Instead of reaping the bounty of a projected $6 million of sales, it drummed up just $1 million. In January, the bank scrapped the program. Mr. Robinson estimates that Riverside lost about $100,000 in start-up costs.

Riverside, like other small banks, has run smack into the conundrum of selling retail investments: While many banks see such sales as strategically important, the market is crowded and extremely tough for small players to crack.

While big banks, so far, are riding through the tough times, many small bankers are throwing in the towel.

"Some banks just don't have a need for these products," said Eli Neusner, a consultant with Cerulli Associates, Boston.

Take California's City Commerce Bank. Even though the $105 million-asset institution operates in Santa Barbara, one of the state's most affluent communities, it scrapped an investment sales program in December, less than a year after launching it.

"Santa Barbara is so oversaturated that when we approached our customers, we found they were already being well served by local brokers," said City Commerce president Terry H. Downard.

The bank's "good image" wasn't enough to lure customers away from these brokers, Mr. …

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