COUNTRYWIDE CREDIT SEES CROSS-SELLING OPPORTUNITIES: MORTGAGES AND FUNDS MIGHT BE A GOOD FIT

As consolidation in the financial services industry shifts into high gear, the challenges of delivering on cross-selling opportunities are starting to appear.

Consider Countrywide Credit Industries Inc.’s expansion into mutual funds 14 months ago. In late February 1997, the Calabasas, Calif.-based residential mortgage lending giant paid $16 million in stock for Cincinnati-based Leshner Financial Inc., then managing $1.1 billion of mostly institutional money market and retail fixed-income funds.

The long-term goal of the purchase: to cross-market mutual funds and other money management products and services to Countrywide’s 1.8 million home loan customers and other business partners.

Leshner’s investment adviser and fund management units are now part of a subsidiary — renamed Countrywide Financial Services Inc. — which also provides accounting and other administrative services for unaffiliated mutual funds.

William Leshner, who founded the firm 24 years ago, continues to run the business from Cincinnati as president.

With Countrywide’s backing, Mr. Leshner began expanding beyond his firm’s original 15-fund family of primarily fixed-income offerings. Last August, Countrywide Financial acquired TransAdvisor Funds of Bowling Green, Ky., which ran five mutual funds — including two stock funds — with combined assets of just $170 million.

starting slow

Late last year, Mr. Leshner attempted to launch an international fund managed by BT Investment Management, but the effort fizzled over operational issues with Bankers Trust New York Corp. He still hopes to fill in product gaps — small cap and international funds — through additional acquisitions of money management firms with up to $1.5 billion in assets, or by hiring outside managers.

Given Mr. Leshner’s cautious pace, it appears that building Countrywide Financial into a meaningful profit contributor amid today’s consolidating fund industry will require patience on the part of its mortgage lending parent, which earned $345 million on $1.5 billion in sales for the fiscal year ended in February.

“It’s a Herculean task,” says Avi Nachmany, director of research at New York-based Strategic Insight LLC. “But (Countrywide) has the resources, and clearly the notion of leveraging upon existing financial services relationships is not being overlooked by companies like Travelers’ Smith Barney and Citicorp.”

But Countrywide’s purchase of a predominantly fixed-income manager has gotten it off to a slow start in a market enamored with stock fund returns. Indeed, the firm’s fund sales have been virtually stalled since Countrywide acquired it early last year.

According to Boston-based Financial Research Corp., Countrywide Funds took in just $26.5 million in the 12 months ended March 31. (In 1996, the year preceding the acquisition, Leshner had $135.2 million in net fund sales.)

Though the firm’s money market funds attracted $62.4 million, growing to $690 million through this year’s first quarter, fixed-income funds suffered $82.6 million in net redemptions, ending March with $227 million in assets. Countrywide’s equity funds had $46.7 million in net sales, and now total $170.7 million.

With total assets under management — including individual and institutional separate accounts — now at $1.4 billion, Countrywide Financial still faces a steep challenge in meeting an internal goal to manage $10 billion by 2002.

a fresh approach

Last month, in a bid to jump-start fund sales, Mr. Leshner hired William Hortz as executive vice president and national sales manager. That position had remained unfilled since Countrywide acquired Leshner Financial.

Mr. Hortz — who was president of Peregrine Asset Management’s U.S. operations until the Hong Kong-based money manager’s parent collapsed in January — is initially trying to boost relationships with his firm’s traditional sales network of broker-dealers, financial planners and institutions.

To get that effort started, Mr. Hortz is seeking to add 14 salespeople, including seven wholesalers to build sales through firms such as Raymond James & Associates and Linsco/Private Ledger Corp.

The firm also hopes to expand its money market business through additional private label offerings that will resemble existing relationships with New York-based Bear Stearns & Co., Cincinnati’s Fifth Third Bancorp and Columbus-based Huntington Bancshares.

Countrywide still intends to market funds to its home-loan customers, but any payoff will clearly be years away.

“Mortgage customers are generally younger and their income level and asset base don’t allow them to save a lot of money,” says Mr. Hortz. “For now, we’re focusing on educational efforts.”