Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.wpost From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: NationsBank-Dean Witter Plan Is a Pairing of Opposites =BY STAN HINDEN= Date: Wed, 4 Nov 92 04:54:43 EST Message-ID: <49.1992Nov4.045444@AmeriCast.com> NationsBank-Dean Witter Plan Is a Pairing of Opposites =BY STAN HINDEN= The politicians are right. Competition isn't what it used to be. Even those longtime rivals, the bankers and the stockbrokers, don't want to battle it out anymore. Witness the decision by Dean Witter Financial Services Group Inc. and NationsBank Corp. of North Carolina to join hands and sell mutual funds and other in- vestments. Dean Witter and NationsBank will become equal partners in a new, jointly owned company called Nations Securities. Initially, it will be staffed by 200 brokers from Dean Witter and by 200 brok- ers who already work at a NationsBank brokerage subsidiary. The arrangement could provide one-stop financial shopping for bank customers. If successful, the endeavor is likely to be copied by other major banks and brokerages. The deal brings together NationsBank's 21 funds, which have as- sets of $7 billion, with the 59 Dean Witter funds, which have as- sets of $55 billion. Working together, Dean Witter and NationsBank will try to mine the massive customer base of NationsBank, which has nearly 1,800 branch offices in nine states and the District. NationsBank ter- ritory reaches across regions with 67 million residents. For Dean Witter executives, the very thought of gaining access to the 7 million NationsBank customers is a mouth-watering pros- pect. For NationsBank officials, getting within reach of Dean Witter's huge menu of mutual funds and investment expertise is equally tempting. It won't be the first effort to forge a profitable partnership between a bank and a brokerage - but it will be the first time a major bank and a major Wall Street firm have teamed up for a test of how much investment business actually is available from bank customers. The project comes at a time when Dean Witter's parent company, Sears, Roebuck and Co., in an attempt to get back to retailing basics, is planning to spin off the brokerage to shareholders and the public. Dean Witter officials are hoping the joint venture will be seen by the stock market as a plus. The deal means that a NationsBank customer who doesn't like the idea of renewing a certificate of deposit at 3.5 percent or 4 percent interest can walk across the lobby to the desk of a Dean Witter or NationsBank broker and invest in a bond fund that may be yielding 6 percent or 7 percent. That kind of business will be good for both Dean Witter and Na- tionsBank, which will collect the fees for handling and managing the funds. For the customer, the opportunity to buy a fund within the bank may or may not be a good deal. It will depend on whether the customer understands the product he or she is buying, the performance of the fund, the amount of risk it carries and the costs involved. In its own brokerage offices, Dean Witter is known to vigorously encourage its brokers to push Dean Witter funds. The new joint operation is expected to have outside funds available as well. However, selling too many outside funds could hurt the new venture's profit because they make more money on their own funds. Executives at both Dean Witter and NationsBank acknowledge that the deal is rooted, in part, in the fall of interest rates, which has prompted depositors to seek alternative investments. But they claim that they are not afraid that their efforts will be derailed if and when rates go back up. "Low interest rates have driven a lot of people to look for al- ternative investments, but I really believe the growth of the bank's mutual fund business reflects a change in ... the invest- ment patterns of our customers who are looking for better oppor- tunities," said Charles R. King, president of NationsBanc Securi- ties Inc. He will become executive vice president of the new joint company. James F. Higgins, president of Dean Witter, agreed that drop- ping interest rates had sparked a move by bank customers to other investments. But he, too, claimed the move was not dependent on rates. "I think there is a whole segment of customers out there looking to their banks ... for answers to questions ... relative to sav- ings products, and now investment products," he said. "I would speculate that whether interest rates are at a 20-year low or 20-year high, customers will continue to ask bankers for advice in terms of savings and investment products," Higgins said. These clients, he added, "want their investment and saving needs met within the four walls of the branches of the bank." The joint venture faces a number of hurdles, according to members of the mutual fund industry. C. Herbert Emilson, the president of the Colonial Group Inc. in Boston, a company that sells mutual funds through both brokers and banks, said the partners would have to face an inevitable clash of cultures. Traditionally, Emilson said, "The bank sold safety. Dean Witter sold risk," he said. "All of a sudden, a safety-based philosophy merges with a risk-based philosophy. ... It sounds like the odd couple to me." Whether the plan succeeds or fails will depend, in part, on how it is presented to the bank customer, said Kenneth R. Leibler, president of Liberty Financial Cos., which also sells mutual funds through banks. Despite bank and thrift scandals, Leibler said, surveys show bank customers still trust their banks. Brok- ers, however, rank somewhat lower on the trust scale, he said. NationsBank customers may be more willing to buy investment pro- ducts if they perceive they are dealing with the bank rather than with a brokerage, Leibler said. "Customers tend to identify brokers with more risk than they are used to taking," he said. Edward J. Boudreau Jr., chairman of John Hancock Mutual Funds in Boston, suggested that NationsBank faces an internal conflict because when customers transfer money from their saving accounts to mutual funds, the bank's lending power could be reduced. Asked how NationsBank felt about this question, King cited statistics to show that the trend away from the banks is already in place. In 1980, about 47 percent of household financial as- sets, those that individuals control directly, were in cash and bank deposits. According to estimates, King said, that figure will drop to 31 percent by the year 2000. The rest of the money has gone into stocks, bonds and mutual funds, he said. "If we don't provide these products to our customers," he said, "our competitors will."<02:42 11-04C9999----- Copyright 1992, The Washington Post. This story is from the Washington Post's Capitol Edition On-Line and is not to be ar- chived or redistributed. For more information, send-email to American Cybercasting Cor- poration (usa@AmeriCast.COM)