Patching Over the Past, BNY, Mellon Merge

Two titans of the securities servicing industry - Bank of New York and Mellon Financial - have merged to form a new colossus.

The new company, to be called Bank of New York Mellon Corp., will have $16.6 trillion in assets under custody and $8 trillion in assets under corporate trusteeship, ranking the firm No. 1 globally in both businesses, the companies said. Moreover, the combination will rank among the top 10 global asset managers, according to the firms, with more than $1.1 trillion in assets under management.   With a combined pro-forma market capitalization of $43 billion, Bank of New York Mellon Corp. would be the 11th largest U.S. financial institution.

According to a press release, the transaction has already been unanimously approved by each company’s board of directors and is expected to be completed early in the third quarter of 2007, subject to regulatory and shareholder approvals.

Management Team

Thomas A. Renyi, currently chairman and chief executive of The Bank of New York, will serve as executive chairman of The Bank of New York Mellon Corporation for 18 months following the close of the transaction with overall responsibility for the integration of the two companies.  The deal is clearly a personal triumph for Tom Renyi, who is coming up on ten years as chief executive of The Bank of New York. Renyi has radically redeployed the bank’s capital and in the process remade the bank, focusing on its asset servicing business and re-engineering its infrastructure and its disaster recovery systems in the aftermath of 9/11, which hit BNY particularly hard. In the last decade BNY has shed its credit card business, its commercial factoring business, and most recently its retail branches – in that time it has made an astounding 80-plus acquisitions, the vast bulk of which were in the asset servicing businesses.

The Mellon deal, of course, is less additive than transformative. Robert P. 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 L. Hassell, currently president of The Bank of New York, will hold the same position in the new company. The board of directors will comprise 10 members designated by The Bank of New York and eight members designated by Mellon. The new company’s headquarters will be based in New York City while maintaining what the firms described as “a strong and growing presence” in Pittsburgh, Mellon’s home city.

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 companies say they will reduce headcount through normal attrition wherever possible and will provide “extensive support” to employees impacted by the merger.

Revenue Sources

The combined companies' current revenues of roughly $12 billion were broken out as approximately:

  • 28% derived from asset servicing,
  • 38% from issuer services, clearing services and treasury services, and
  • 29% from asset management and private wealth management.

Almost a quarter of combined revenue will be derived internationally, according to the firms.

Under the terms of the agreement, The Bank of New York's shareholders will receive 0.9434 shares in the new company for each share of The Bank of New York that they own and Mellon shareholders will receive one share in the new company for each Mellon share they own. The Bank of New York and Mellon have entered into mutual stock option agreements for 19.9% of the issuer's outstanding common stock.

"Together, we will have the scale, the technology, the capital, and the people we need to compete and win in the rapidly expanding global marketplace," Renyi said in a statement.

"Through this merger, we will be able to invest and expand more effectively than any of our competitors due to our combined scale, profitability and global reach. The organic growth of our respective companies is already strong, and the cost savings and revenue synergies opportunities are excellent," Kelly said.

A decade ago, BNY made a hostile run at Mellon, which reacted vigorously - indeed, the dialogue between the two institutions was best described as vitriolic. Indeed, in the aftermath of that unpleasantness, Renyi noted that he would not attempt do another hostile acquisition. Instead, he has totally reengineered the bank, wooed rather than forced Mellon into a marriage, and he now takes over as chief executive of an institution with some $25 trillion in custody and corporate trusteeship assets, and $1 trillion under management.

The view from One Wall Street , where the bank has its Dickensian headquarters, must look particularly rosy this morning.