Since launching a major reorganization of Mellon Financial Corp. last year, Martin G. McGuinn has strived to convince the outside world that his company is changing.

Mr. McGuinn, 56, who took the helm of the $47.3 billion-asset Pittsburgh banking company in January 1999, has been shedding businesses - mortgages, credit cards, and processing units - while building Mellon's high-growth operations, including asset management. He also reorganized the company's top management to emphasize these changes.

Not all the divestitures came easily to Mr. McGuinn, who once ran Mellon's credit card and mortgage businesses. "The decision on cards was especially tough, because they had completed a great turnaround," Mr. McGuinn said in a recent interview.

Now the focus is shifting, and Mr. McGuinn is looking for ways to build on Mellon's new base. However, he has ruled out the course attempted by his predecessor, Frank V. Cahouet, whose efforts to buy CoreStates Financial Corp. of Philadelphia and BankBoston Corp. ended unsuccessfully.

Emphasizing that he will not attempt a bank-to-bank combination, Mr. McGuinn said he intends to go after asset management firms, particularly international ones.

"My priority would be acquisitions abroad," Mr. McGuinn said. "And the reason is we just see higher growth rates abroad. So much is going on in Europe in terms of people planning for retirement, the privatization of social security. It's like the United States was 10 years or so ago. The United States is clearly the biggest market, and there is plenty of growth left, but the growth rate is so much higher in Europe."

In 1998 the company acquired Newton Asset Management of London, which has been, according to Mr. McGuinn, "a grand slam home run" as far as performance. It also bought Founders Asset Management of Denver in 1998.

Mellon also has numerous overseas relationships, including a global custody alliance with the Dutch bank ABN Amro Bank NV; an investment management venture with Banco Brascan, a Brazilian investment bank; an investment management alliance with Bank of Tokyo-Mitsubishi; and an alliance with Bicecorp SA, a diversified financial institution in Santiago, Chile.

Mellon also has strategic alliances with Hamon Investment Group Pte Ltd., a Hong Kong asset management firm, and with UOB Asset Management Ltd. in Singapore.

The businesses Mellon has divested in the past year were generally selected because they were too "scale dependent" and required investment that Mellon "did not care to make," Mr. McGuinn said at the time. It was better to sell the business and use the proceeds to invest in higher growth and higher return businesses, he said.

The units that were not sold were divided into two sections: The "Managed for Growth" division, which included wealth management, global investment management, and global investment services, and the "Managed for Return" division, which included regional consumer banking, specialized commercial banking, and large corporate banking.

The growth sectors' revenue made up 61% of Mellon's total core sector revenue in the first quarter, compared with 58% in the first quarter of 1999. The growth sectors also contributed 41% of Mellon's 26.06% return on equity during the first quarter, up from 32% in the first quarter of 1999 when the Mellon's return on equity was 25.41%.

Mr. McGuinn acknowledged that Mellon's retail banking is not growing as quickly as its asset management, trust and custody divisions. However, he has no plans to sell those units off, as its competitor State Street Corp. of Boston did last year. State Street's move that won favor from the stock market.

Keeping the retail portion of the business helps keep Mellon's business mix diversified, Mr. McGuinn said.

And while its "revenue growth may only be 5% or 6%, the earnings per share growth is 12% or 14%, which is very strong," Mr. McGuinn said. The earnings per share growth is so high, he said, because the company is keeping expenses as flat as possible.

He added that the specialized commercial banking and large commercial banking units help "feed into" Mellon's other businesses.

"We want to become the overall financial service provider for our customers," he said. "Last year we used to pay people to make loans. Now our team is going out there and trying to understand the needs of large corporations, and providing pension expertise, trust or custody expertise, or leasing expertise. We can provide all of those services to our customers and make a better return for the shareholder in the process."

Mellon has more than $2.8 trillion of assets under management, administration, or custody, including more than $500 billion under management.

Investors are still taking a wait-and-see approach about the company's new strategy. That has frustrated Mr. McGuinn and other members of Mellon's senior management. The market's biggest question is: "Are you really changing?"

Mr. McGuinn has been taking his message of change on the road, visiting New York this week to meet with Wall Street analysts. Mellon's first-quarter return on equity of 26.06% made it the fourth-most profitable bank among of the largest 50 U.S. banks, according to Keefe, Bruyette & Woods Inc.

Mellon's return on equity compares favorably with other companies that specialize in custody, trust, and other services for institutional and individual investors. Bank of New York ranked second on the top 50 list, but State Street and Northern Trust Corp. of Chicago ranked ninth and 15th, respectively

But Mellon's stock, which trades around $34, has not budged much since Mr. McGuinn took over last year.

Mellon's price/earnings ratio of 16.6% is far lower than its competitors - 30.8% for Northern Trust.; 27.4% for State Street; and 23% for Bank of New York - according to Keefe, Bruyette & Woods.

However, analysts believe that the company will deliver a considerable upside. Most have "buy" ratings on the company.

"Mellon has not been doing this as long as some of its peers," said Denis Laplante, an analyst at Fox-Pitt Kelton. "But their stock price will eventually catch up."

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