In acquiring Dreyfus Corp.. one of the few real household names in the mutual fund business, Mellon Bank Corp. has ushered in a new era for the banking industry.
Over recent years, banks have been pushing into the mutual fund business by expanding sales forces, teaming up with brokerage firms, and even acquiring some fund assets.
Jumping to Another Level
But nothing has come close to the deal that Mellon announced Monday. With the acquisition, it will instantly become one of the top five companies in the mutual fund business, towering above all bank rivals. Its fund assets will soar from $4.6 billion to $76.8 billion.
"It's a definite quantum leap for the banking industry," said Carl Frischling, a law partner at Reid & Priest, New York.
For a sector that has become increasingly infatuated with mutual funds, "the price of poker just went up," said A. Michael Lipper, president of Lipper Analytical Services, New York
Mr. Lipper said the deal is revving up interest among banks in acquiring mutual fund companies. "I don't know of any specifics, but there must have been 10 to 20 informal [bank] committee meetings this morning, asking, |What does this mean?'"
Roughly two dozen of the nation's biggest banks, out of 100 or so that manage mutual funds, are said to be actively looking for mutual fund companies to acquire.
Some Takeover Possibilities
Among the mutual fund companies that are widely said to be attracting attention from banks are: T. Rowe Price Associates, Baltimore; Scudder Stevens & Clark, New York; Colonial Mutual Funds, Boston; Eaton Vance Corp., Boston; and Lord, Abbett & Co., New York.
"There's nobody out there that is so big or so powerful or so independent that they can't be acquired," Mr. Frischling said.
In acquiring one of the nation's biggest mutual fund companies, Mellon is doing more than building assets. It is also picking up a marketing image known coast to coast: the Dreyfus lion.
"What you have here is a very fine banking name buying a real brand name in the money-management business," said William Shiebler, senior managing director at Putnam Investments, Boston. "They're buying something that already has a certain level of consumer identity."
My reaction was: "Wow, what a deal!'" said Eugene Lockhart, executive vice president at First Manhattan Consulting Group, New York. He said the acquisition dramatized how banks and mutual fund companies are competing for the very same customers.
While many observers expect more deals, few think the Mellon /Dreyfus merger will be topped anytime soon.
For one thing, most of the top 10 mutual fund companies are fiercely independent.
"A lot of the executives of these companies will die in their boots," said Geoff Bobroff, a mutual fund consultant in Denver. "But are there a lot of small boutique shops for sale? The answer is |yes.'"
Mr. Bobroff said he thinks fund companies with $5 billion or less in assets under management are most vulnerable.
Richard K. Wagoner, executive vice president of First Union Corp., Charlotte, N.C., agreed. He said he expects to see "a lot of acquisitions of a smaller nature, and plenty of them."
But deals on the scale of the Mellon/Dreyfus merger carry a special risk. "It's a big acquisition, and you've got to be willing to accept a lot of dilution," said Mr. Wagoner, who Played a key role in First Union's recently announced plan to acquire the $3.3 billion-asset Evergreen family of mutual fund.Forging TiesAcquisitions and alliances announced since 1992 Bank/dateannounced Description Mellon, Agrees to acquire Boston Co., a trust and moneySept. '92 management unit of America Express, for $1.45 billion NationsBank Teams with Dean Witter Financial Services to marketOct. '92 stocks and bonds in bank lobbies Chemical Forms a joint venture with Liberty Financial Cos. toMarch '93 market mutual funds First Bank Strikes deal with American Express' IDS FinancialSystem, April '93 Services to offer financial planning at branches First Union, Agrees to acquire Lieber & Co., a mutual fund manager,Oct. '93 for $127 million Mellon, Agrees to acquire Dreyfus Corp. for $1.85 billionDec. '93 Source: American Banker