Revenue from sales of mutual funds in banks fell more than 27 percent from the third quarter of 2000 to the last quarter of the year.
Banks averaged $436 in revenue per million dollars of retail deposits during the period compared to $601 in the third quarter of the year, according to the Kehrer-Equitable Distributors Monthly Bank Investment Services Monitor. Performance for the period also lagged behind fourth quarter 1999 revenues, which were $545 per million. That represented a 20 percent reduction. The report is based on data from 24 banks participating in the survey.
"Customers are running and hiding," said Ken Kehrer, the principal of Ken Kehrer Associates, an independent consulting firm in Princeton, N.J., which specializes in bank securities programs.
Volatile market activity makes mutual funds a hard sell and that is particularly true in banks, according to Russ Kinnel, director of funds analysis for Morningstar, the financial information services firm of Chicago.
"For banks, it's tougher because their potential investors are among the most conservative out there," he said. However, since banks adhere to their conservative roots in their fund offerings, they may blunt the impact that the roller coaster markets have had on some aggressive funds.
"Traditionally, they've invested in large-cap stocks and haven't been heavy in growth stocks so bank funds haven't burned their investors as badly as some net and tech funds," Kinnell said. "But, their investors are more cautious and they may well be a little harder to sell on investing in the market at this point."
Based on the earnings data, it can be expected that mutual fund sales through banks declined by a similar percentage, Kehrer said.
"The revenue to sales ratio is the same for those two quarters, so if revenues move one way, sales will move the same way," he said.
A drop in sales, though, would contradict what was happening to the industry as a whole at the end of 2000, according to Lipper, a provider of data on investment companies, of Summit, N.J. Those numbers show net asset flows for all mutual funds to have jumped from the third to the fourth quarters, from $95 billion to $130 billion. But $100 billion of that fourth quarter gain came from a large net flow into money market funds. Net flows into equity funds steadily slid during the year from $130 billion in the first quarter to $35 billion in the last quarter, according to Lipper.
Fund revenues in banks slid so much during the quarter that they were outperformed by fixed annuities in the channel. Although fixed annuity revenues declined almost three percent from the third quarter, from $490 per million to $476 per million, they still outdistanced fund revenues by more than nine percent.
"That's very unusual," Kehrer said. "But mutual fund sales still exceeded fixed annuity sales because of the difference in commission rates." Banks earn more on the sale of a fixed annuity than they do on a mutual fund sale.
Overall, the report showed that revenues from all investment services sold through banks dipped nearly 16 percent from the third to fourth quarters of 2000, from $2072 per million to $1742 per million, and almost 15 percent from the fourth quarter of 1999 when revenues were $2044 per million. The survey also showed that fixed annuities accounted for the largest portion of revenues from investment services sold through banks in the fourth quarter, 27 percent compared to 24 percent in the previous quarter. Third-party mutual fund revenues during the year's last quarter accounted for 21 percent of the pie, a four percent slip from the previous quarter. Revenues from bank proprietary funds, at four percent, remained unchanged from the third to the fourth quarter. Rounding out the fourth quarter revenue pie were variable annuities with 20 percent, stocks and bonds with 11 percent and all other sources accounted for 17 percent. Fourth quarter sales trends appeared to be continuing during the first quarter of 2001.
"The banks I've heard from say that fixed annuity sales remain strong," Kehrer said. He predicted that the revenue will continue to be weak in the new year. "Even if the markets jump up for a few days, people would still be wary of investing in funds," he said.
Banks in the survey were AllFirst Bank, of Baltimore, Md.; AmSouth, of Birmingham, Ala.; Bank North, of Wausaukee, Wis.; Bank of New York, of New York; Cal Fed Bank, of Fresno, Calif.; J.P. Morgan Chase, New York; Commerce Bank, of St. Louis; Compass Bank, of Birmingham, Ala.; Dime Savings, of New York; First Union Bank, of Charlotte, N.C.; GreenPoint Bank, of New York; Hibernia Bank, of New Orleans; HSBC Bank USA, of New York; Huntington Bank, of Columbus, Ohio; Mellon Bank, of New York; Mercantile Bank, of Baltimore, Md.; Michigan National, of Farmington Hills, Mich.; Old Kent Bank, of Grand Rapids, Mich.; PNC, of Pittsburgh; Provident Bank, of Jersey City, N.J.; Regions Bank, of Baltimore; SouthTrust, of Birmingham, Ala.; Summit Bank, of Princeton, N.J.; Union Bank of California, of San Francisco; and Wachovia Bank, of Atlanta-Winston-Salem, N.C.