Mellon Bank Corp. said Tuesday that it will take its global custody business international through an alliance with ABN Amro Bank of the Netherlands.
The companies said they agreed to form an Amsterdam-based joint venture that will rely on ABN Amro to distribute Mellon's securities processing services and related products. Their initial focus will be on Europe, where ABN Amro has 1,100 of its 1,900 offices.
By cooperating, the banks hope to become a force to reckon with in a part of the wholesale services market that is dominated by a few companies of increasingly large scale.
International alliances are not uncommon among financial institutions that want to maintain close customer contacts on the local level, supported by a multinational infrastructure. Mellon has such relationships in Canada, the Nordic countries, Spain, and Portugal, which will not be covered by the deal with ABN Amro.
But the operation to be known as ABN Amro Mellon Global Securities Services has an especially broad reach.
"Global markets continue to shape themselves, and we will be in the forefront," said Daniel Wywoda, head of trust and custody for Mellon in London.
Many bankers view alliances as an easier approach to foreign expansion than acquisitions or de novo entry, whether in global custody or other business lines.
Market experts were skeptical, however, of the Mellon venture's ability to compete against Chase Manhattan Corp., Bank of New York Co., and State Street Corp.-the three largest U.S. providers and possessors, which have strong brand recognition.
Both Mellon and ABN Amro have been building custody capabilities but have yet to break into the top tier of the business, analysts said. Mellon has $1.7 trillion of assets under administration; ABN Amro, $550 billion.
The banks would not disclose revenue goals or say when they expected a profit from securities services.
Marinus Maaskant, the new venture's managing director, said ABN Amro saw the alliance as a way around necessary technology investments.
"A lot of our customers worldwide asked for custody services, and we thought as a universal bank that we should be able to offer them," said Mr. Maaskant, who is also an ABN Amro senior vice president for securities processing and custody. "Mellon had already made all the investments."
Custody services are seen as a stable source of fee income, and analysts praised Mellon for seeking to expand abroad.
Mellon is "jumping out and saying they're not going to be myopic and just buy a regional bank," said Eric Rothman, an analyst at Stephens Inc. "They're going to differentiate."
The custody market in Europe is experiencing the same consolidation that affected U.S. banks earlier this decade, bankers said. A growing retail mutual fund industry, the privatization of pension assets, and the coming of a common currency have attracted U.S. banks' interest.
ABN Amro sees its European roots as a powerful asset, Mr. Maaskant said. "We think we have an advantage in being able to deliver services in the client's own language," he said. "Not all of those clients are going to go to Chase or State Street."
Some competitors see it differently. Bank of New York, administering $950 billion of non-U.S. assets, built its own infrastructure, with 1,000 employees in offices in Brussels and London and servicing centers in Paris, Milan, Frankfurt, and Madrid. "Long term, we believe that's the way to go," said Thomas J. Perna, senior executive vice president.
In Australia, Bank of New York has a joint venture with National Australia Bank. Bank of New York and Boston-based State Street both have local partners in South Africa.
"Customers like to have someone at least in their time zone," Mr. Perna said. "Technology is important, but it's still very much of a people business."
