Mellon Bank Corp. continues to beef up its fee income businesses through acquisition.
Last week it agreed to buy the commercial mortgage servicing portfolio of Bankers Trust New York Co. Terms were undisclosed.
The deal, scheduled to close in a few weeks, would nearly double Mellon's $11.1 billion portfolio, adding 1,843 loans and $7.9 billion in commercial mortgage transactions.
It would make Pittsburgh-based Mellon the second-largest servicer of commercial mortgage loans, behind General Motors Acceptance Corp.
Commercial mortgage servicing generates fee income for handling payments and other administrative tasks for investors in the loans, explained Paul Holmes, president of Houston-based Mellon Mortgage Co.
Mellon has been aggressively expanding its mortgage servicing activities for both commercial and residential loans. Last September, in its most recent transaction, Mellon acquired a commercial portfolio and two origination offices from Fleet Financial Group in Boston.
"We have been acquiring mortgage business as the opportunities come up," Mr. Holmes said.
Analysts said they expect Mellon to make more such acquisitions. "They are one of the largest mortgage servicers in the business, and their costs to service are among the lowest," said Joseph Duwan, an analyst at Keefe Bruyette & Woods. "It is a good fee-income business for them."
Fee income contributes more than 60% to Mellon's annual revenue, said Mr. Duwan. In the first quarter of this year mortgage servicing contributed $51 million to total fee income of $536 million, he noted.
Mellon will service the loans acquired from Bankers Trust from its Cleveland, Denver, and Overland Park, Kan., offices. The bank will also hire some Bankers Trust employees, though official staffing requirements have not been determined, Mr. Holmes said.
The business has been run out of Bankers Trust's Irvine, Calif., global institutional services unit. A spokeswoman said fewer than 35 employees would be affected by the deal.
Analysts said the sale was additional proof that the New York-based Bankers Trust is moving to concentrate its resources on higher-profit businesses like asset management.
"Bankers Trust is being capital-wise," said Bradley Ball, an analyst at Credit Suisse First Boston. "They are paring back operations that are not contributing to revenue growth."
