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Mellon Financial to exit retail banking

Sale to Scottish-owned bank means 200,000 local accounts will switch, too

Wednesday, July 18, 2001

By Patricia Sabatini, Post-Gazette Staff Writer

In a bold move that nearly completes a dramatic transformation away from its century-old banking roots, Mellon Financial Corp. yesterday said it was selling its branch banking operations to Rhode Island-based Citizens Financial Group Inc. for about $2 billion in cash.

    More on this story

For 132 years, Mellon money fed industrial engine that transformed Pittsburgh, nation

How it affects competitors: PNC hoping for a windfall

How it affects the region: Economic impact not as big as psychological

How it affects customers: Citizens to be more 'retail-oriented'

What customers, employees say: For most, it's just a bankbook issue

Sally Kalson: Mellon wants change -- just not yours


The sale, which had been widely anticipated, also changes the face of consumer banking in Pittsburgh, where Mellon has been a fixture for 132 years, financing many of the region's industrial stalwarts with deposits from the people who worked in their plants.

Mellon, the region's second-largest bank behind PNC, is shedding $13 billion in deposits, $6 billion in loans and 350 branches in three states, including 118 in the Pittsburgh region.

The transaction means roughly 700,000 households, including 200,000 in the six-county southwestern Pennsylvania region, will see their accounts transferred to a new owner who will operate the former Mellon branches under the Citizens Bank of Pennsylvania name.

Roughly 2,000 local branch and back-office employees and 4,100 overall also will soon be working for Citizens, the U.S. banking arm of The Royal Bank of Scotland, which yesterday vowed to keep "virtually all" of them.

Mellon will hang onto a huge number of local workers -- it employs some 8,000 in the region and 21,900 worldwide in its remaining businesses, which include money management, trust, custody and securities processing services.

Mellon said it will use the proceeds from the sale of its consumer and small business banking unit to buy back stock and to invest in those faster-growing nontraditional banking businesses that make up the bulk of its operations today.

Mellon also will continue to offer banking services to large corporate and commercial clients.

It also is keeping its private banking operation, which caters to wealthy individuals -- those with $1 million to invest or annual incomes of at least $250,000.

To serve those customers, Mellon will keep or open a total of 19 offices, including seven in the Pittsburgh region. Those locations are mostly in affluent areas such as Sewickley, Fox Chapel and the South Hills, as well as Downtown.

  Comparing the companies

Mellon Financial Corp.

Headquarters: Pittsburgh

Employees: 26,000 corporatewide, including some 10,000 in Western Pennsylvania.

About 4,100 overall work for the retail banking business, including roughly 2,000 in the Pittsburgh region.

Branches: Mellon is selling 350 branches in Pennsylvania, New Jersey and Delaware, including 118 in Western Pennsylvania.

Assets: $46 billion

Revenue in 2000: $4.49 billion; 20 percent from retail banking.

Net income in 2000: $1.01 billion; 25 percent from retail banking.

Citizens Financial Group

Headquarters: Providence, R.I.

Employees: 8,200.

Branches: About 340 in Connecticut, Massachusetts, New Hampshire and Rhode Island.

Assets: $31 billion.

Revenue in 2000: $1.38 billion, almost all from retail banking.

Operating earnings in 2000: $230 million, almost all from retail.

--Citizens Financial Group is a subsidiary of the Royal Bank of Scotland Group, Edinburgh.


Analysts generally applauded the sale, saying it should be good for Mellon's stock price in the long term, since Wall Street generally rewards money management firms with higher trading multiples than traditional banks.

"I think it's a good move for Mellon, and they got an awfully good price," said veteran banking consultant Arnold Danielson of Danielson Associates in Rockville, Md.

"They really found someone who really wants to expand and pay up for a business that's not a strong growth business."

Still, the loss of revenue from the retail operations, which accounted for about a quarter of Mellon's first-quarter profits, could cause investors some anxiety in the short term, observers warned.

Yesterday, Mellon's stock lost $2.03 to close at $40.18.

The transaction is expected to be completed in the fourth quarter. That's when Mellon's familiar green and white signs will start to disappear from branches and be replaced by the green banners of Citizens Bank of Pennsylvania.

The Mellon name will still figure prominently in the region.

"Pittsburgh definitely will remain our headquarters," Chairman and Chief Executive Officer Marty McGuinn said at a news conference at One Mellon Center, Downtown.

"Not only is [Pittsburgh] our heritage, it's also an excellent place to do business ... and we've invested a ton of money in our facilities and the community."

Still, some observers believe that by lopping off its slow-growing retail banking business, Mellon could become a more desirable takeover target for a number of giant financial institutions that covet its money management and trust businesses.

McGuinn yesterday disagreed, saying flatly, "Mellon is not for sale."

The 58-year-old CEO called the divestiture a "win-win" for Mellon, its customers, employees and shareholders.

"We have a wonderful retail franchise with terrific people, but we haven't been investing in it to make it grow," he said. "The best thing we can do for that business is sell it to somebody who will invest in it and grow it."

After the sale, Mellon will derive 85 percent of its revenue from sources outside the traditional banking business, up from roughly 70 percent currently, he said.

By letting the retail business go, "it will make Mellon an even stronger and faster growing company," McGuinn said.

"That will certainly serve our shareholders well."

Nevertheless, Mellon plans to slash its quarterly dividend in the fourth quarter, from 24 cents a share to 12 cents, a rate that is more in line with what other "growth companies" in the trust and money management businesses are paying, McGuinn said.

The chairman of Citizens, meanwhile, sought to soothe customers and employees jolted by the news that the venerable Mellon banking institution would be changing hands.

"We're here in Pennsylvania for the long term and we intend to hit the ground running and to grow," Chairman and Chief Executive Officer Lawrence Fish said.

"We have no plans for job cuts," said Fish, who was on hand for the news conference.

"This [acquisition] is about growth and about moving forward. Our hope is if there are any redundancies, that [job losses] would take place naturally, through attrition."

Citizens, the second-largest bank in New England with about 340 offices in Connecticut, Massachusetts, New Hampshire and Rhode Island, has been seeking to expand outside its New England footprint.

Unlike Mellon, Citizens is primarily a retail bank. It also has an insurance arm, Brewer & Lord, which it acquired last year.

After the sale, Mellon will drop from the 21st-biggest bank in the country to No. 32, based on assets, primarily loans, while Citizens will vault from No. 33 to No. 23.

Fish promised that Citizens also would become a good corporate citizen in the region, announcing that the company would set up a $35 million foundation to invest in Pennsylvania communities.

He said Citizens plans to establish a regional banking headquarters in the state to oversee its newly acquired operations in Pennsylvania, New Jersey and Delaware, but that it was too soon to say if Pittsburgh would be chosen for the site.

As for Mellon's retail customers, "we may have good news about fees," Fish said.

Danielson, of Danielson Associates, said he believes the shift in ownership from Mellon to Citizens could hold some benefits for consumers.

Citizens probably "would be better for the little guy," in terms of offering lower fees and more convenient hours because of its aggressive consumer-oriented strategy, he said.

Still, news of the sale already has Mellon's hometown rivals champing at the bit to steal customers disgruntled by the transition.

"A change like this one would create opportunities that PNC could pursue from a position of strength," said Pat McMahon, spokesman for PNC Financial Services Group, the region's largest bank with a 28 percent share of deposits compared with Mellon's 25 percent.

Competitors count on uncertainty over changing fees, branch closings and other transition issues to attract large numbers of defecting customers.

After First Union bought Philadelphia-based CoreStates in early 1998, PNC picked up more than $1 billion in deposits from CoreStates customers who decided not to stay with their new owner, McMahon said.

"That experience demonstrated our ability to win new business in times of market turmoil," he said.

As for Mellon, some observers questioned the wisdom of jettisoning a business that represented nearly 1 million households -- a ready-made market for other Mellon products, including its Dreyfus mutual funds.

"It is surprising to me that they would want to get out of that business altogether," said Robert Kanters, research director at the Downtown brokerage Legg Mason.

"If Mellon isn't your banker any more, are you still going to go to Mellon" for investment and other fee-based services?

But others said that by keeping the private banking unit, which serves wealthy people, Mellon is retaining the customer base that offers the best cross-selling opportunities.

"The clients most banks make money on, with the most potential for [picking up] money management business, are the upscale clients," one retired Mellon executive said.

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