Eight years after failing in an attempt to buy Mellon Financial, the Bank of New York (BoNY) finally succeeded last week, the two firms announcing agreement on a $16.6 billion deal.
The deal will create the largest securities servicing and asset management firm globally, called The Bank of New York Mellon Corporation, with $16.6 trillion in assets under custody, and corporate trustee with $8 trillion in assets under trusteeship. The new group will also rank among the top 10 global asset managers with more than $1.1 trillion in assets under management.
Thomas Renyi, currently chairman and chief executive of BoNY, will serve as executive chairman of the new organisation for 18 months following the close of the transaction with overall responsibility for the integration of the two companies.
Robert Kelly, currently president, chairman and chief executive officer of Mellon, will serve as chief executive officer of the new company and will succeed Renyi as chairman of the board. Gerald Hassell, currently president of BoNY, will hold the same position in the new company.
The board of directors will comprise 10 members designated by BoNY and eight members designated by Mellon. Agreement in this area is vital to the deal, for the earlier attempt at a deal in 1998 foundered over an inability to agree on which organisation’s employees should get the top jobs.
Although Kelly states, “Today’s action is clearly in the best long-term interests of our customers, shareholders and employees,” the firms reveal that nearly 10% of the combined workforce will be leaving the new firm. “The companies’ combined employee base of 40,000 is expected to be reduced by approximately 3,900 over a three year period following the transaction,” the state, adding, “The companies will reduce headcount through normal attrition wherever possible and will provide extensive support to employees impacted by the merger.”
The combined company today has annual revenues of more than $12 billion, with approximately 28% derived from asset servicing, 38% from issuer services, clearing services and treasury services, and 29% from asset management and private wealth management.
Sources close to the organisations’ FX operations say they expect some of the cuts to fall upon the trading desk. “Globally it may not be a big issue for the FX desks, however there are bound to be cuts in the US,” says one.
Immediately following the news of the deal, Mellon announced it has reached an agreement to sell its hedge fund unit, Mellon HBV Alternative Strategies, to Mickey Harley, chief executive officer of HBV.
Terms of the transaction, which is scheduled to close by the end of the year, were not disclosed. HBV will be renamed Fursa Alternative Strategies after the closing. “We believe Fursa can pursue its more principal-oriented investment strategies more effectively as a separate entity,” Harley said.
“As Mellon has grown its alternative assets, it has focused on more liquid strategies, ranging from market neutral to currency to macro hedge strategies. On the other hand, Fursa intends to explore increasing its emphasis on principal and activist approaches,” says Phil Maisano, head of alternative strategies for Mellon Asset Management. “Mellon and Fursa have mutually agreed that this separation is in the best interest of both parties, as well as for investors in HBV funds.”
Maisano adds that Mellon will continue to expand its alternative capabilities to complement its diverse asset management operations. “Mellon’s assets under management in alternative strategies have been growing rapidly and now account for more than $20 billion, up from $644 million in 2001,” he says.