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Banks' Fund, Annuity Income Reached $5.4 Billion in 2006

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Banks increased their mutual fund and annuity fee income by 7.2% to $5.38 billion in 2006, up from $5.02 billion in 2005, according to a report from research firm Michael White Associates LLC, Radnor, Pa.

Bank of America N.A., Charlotte, N.C., led all U.S. banks with almost $1.8 billion in annuity and mutual fund fees in 2006, up 13% from around $1.6 billion in 2005, according to the 2007 Michael White-Symetra Bank Fee Income Report.

Wachovia Bank N.A., Charlotte N.C., was a distant second, with $581 million in fees from sales of the 2 financial products, up 4% from $558 million the year before. JP Morgan Chase Bank N.A., New York, was third with $526 million in fees, up 22% from $430 million in 2005.

The report revealed that 24.3% of banks in the U.S. earned revenue from mutual funds or annuities. The largest banks were by far the most active in selling and servicing these products.

Around 73% of banks with over $10 billion in assets sold mutual funds and annuities last year, producing a total of $4.8 billion in fee income from the products, $327 million more than in 2005. These big banks accounted for over 89% of all bank mutual fund and annuity fee income, the study shows.

Banks with under $10 billion in assets recorded $570.4 million, accounting for around 11% of all bank mutual fund and annuity fee income.

Leaders in this group included Silicon Valley Bank, Santa Clara, Calif., with $30.3 million; Mercantile-Safe Deposit and Trust Company, Baltimore, Md. (now part of PNC Financial Services Group Inc., Pittsburgh), with $20 million; the Washington Trust Company of Westerly (R.I.). with $10.8 million; MB Financial Bank N.A., Chicago, with $9.4 million; and UMB Bank N.A., Kansas City, Mo., with $9 million.

Banks under $1 billion in assets accounted for 4% or $222.9 million of bank mutual fund and annuity fee income in 2006, up 8% from $206 million in 2005.

The top 5 institutions in the under-$1-billion-asset category were Essex Savings Bank, Essex, Conn., which collected $4.6 million in fees; Fiduciary Trust Company International, New York, $4.3 million; Northeast Bank, Lewiston, Maine, $1.9 million; Country Club Bank N.A., Kansas City, Kans., $1.7 million; and First Citizens National Bank, Dyersburg, Tenn., $1.4 million.

Banks with proprietary mutual fund or annuity assets under management numbered 108, up from 104 in 2005, MWA reports. (Proprietary funds and annuities are manufactured by other financial companies but marketed under the banks’ own name.) Total assets under management for banks with propriety products rose 14.6%, from $848.3 billion to $971.9 billion in 2006.

“That is the first year that either the number of banks or amount of assets has increased since MWA began reporting on bank proprietary assets in 2001,” says Michael White, president of Michael White Associates.

In 2001, 211 banks held $1.43 trillion in proprietary mutual fund or annuity assets, he notes.

“In 2006, the entire gain in the number of banks with proprietary assets occurred among those with assets less than $1 billion, while banks with assets over $1 billion accounted for $122.3 billion or 99.2% of the gain in proprietary assets,” White says.

He believes the decline of more than half of proprietary bank annuities and funds in just 5 years is because in most cases, packaging products under a bank’s brand proved more trouble than they were worth.

“I think a lot of banks got out due to a lack of scale, so they did not have enough muscle to make a meaningful amount of money,” he says. “They probably found [proprietary products] to be a bit of an activity trap–a lot of time and effort with little return.”

Interestingly, most of the growth in proprietary funds and annuities in 2006 was among smaller banks.

The number of institutions with assets of under $1 billion selling proprietary products grew from 52 in 2005 to 62 last year, White reports. Among banks over $1 billion, the number with proprietary funds or annuities actually fell, from 51 to 46. Of those 5, 3 had assets in excess of $10 billion–an indication that scale may have been an issue, White points out.

The survey was sponsored by Symetra Financial, a subsidiary of Symetra Life Insurance Company, Bellevue, Wash.


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