The merger of Fleet Financial Group with Shawmut National Corp. will create a $32.4 billion investment management operation and proprietary mutual fund family under the Fleet banner.
Both banks are parents to money management firms and mutual fund families which, once joined, will rank among the largest bank and trust company-owned managers in the United States.
The merger of the two regional banks in a $3.7 billion stock transaction will lead to the union of their money management subsidiaries, Shawmut Investment Advisers Inc., Boston, and Fleet Investment Advisors Inc., Providence, R.I. and their mutual fund families. Although industry observers agree the banks were not motivated by institutional business, their merger could produce a stronger combined competitor.
Fleet has $25.5 billion in total assets, including $12.2 billion in managed institutional assets, while Shawmut has $6.9 billion, almost entirely in institutional assets. Fleet has a proprietary mutual fund family, the Galaxy Funds, with $6.6 billion in assets, while the Shawmut Funds, proprietary family introduced in 1993, has $1.2 billion under management.
Lynne Goldman, a consultant with Cerulli Associates, Boston, said combining the assets would put the firm among the top 25 U.S. bank and trust money managers.
Both firms offer traditional products and services for institutional clients including both defined benefit and defined contribution products, said Ms. Goldman.
The surviving money manager likely will operate as Fleet Investment Advisors, said Harold Mackinney, chairman and chief executive officer of Fleet Advisors.
"Since we're keeping the Fleet name for the (bank) company, my guess is we will keep the Fleet name for the investment adviser as well," he said.
The two firms have only begun discussing the integration, but it is likely investment management operations will be based in Hartford, Conn., Shawmut's other base of operations. Mr. Mackinney explained that is where Gunnar S. Overstrom, Shawmut Corp.'s president, is based. Mr. Overstrom, who will become a vice chairman of the merged company, will be in charge of the investments area.
The merger of the firms is still months away, not until after the banks' deal closes sometime in the fourth quarter, pending regulatory approvals, said Mr. Mackinney. H. Jay Sarles, the Fleet vice chairman in charge of investment services, will remain as vice chairman of the merged company.
The joining of both banks' proprietary mutual fund families will produce some interesting results, depending on resolving some administrative issues, according to Cerulli's analysis. Ms. Goldman noted the combined organization will be one of the country's largest distributors of bank-owned investment products, ranking 13 out of 115 bank-owned fund families. Besides the Galaxy mutual fund family of 19 funds, Fleet also offers a Galaxy variable annuity that wraps four of the funds; Shawmut has a nine-fund family and is developing a variable annuity offering of its own.
Important questions, according to Ms. Goldman, are whether the fund families and annuities remain separate or are merged, and whether the resulting fund family will carry a load or not. The Galaxy funds carry no loads, while the Shawmut funds have a front-end load.
Both mutual fund families have fixed income and equity funds, money market funds, and both Connecticut and Massachusetts bond funds. According to Cerulli's analysis, 40% of assets in Fleet's Galaxy funds are in equity funds, 36% in money market funds and 24% in fixed income funds; the Shawmut Funds family's assets are 60% in money market funds, 24% in equity funds and 16% in fixed income funds.
Some overlapping funds could be merged as a result, but it's too soon to tell which ones, said Mr. Mackinney.
"There certainly will be similarities. We will look them over and see who had the longer records and the better records and logic would dictate that we keep that one. But it is too soon to say."
He noted that despite the retail interest inherent in the bank merger, both companies are interested in using their combined strength to grow their institutional marketshare.
"We're typically a little bit more consumer-oriented than institution-oriented," said Mr. Mackinney, but added, "We are all after institutional business. We have been and continue to be."