In late December, when Mellon Bank Corp. announced it was acquiring a pension benefits consulting business, the move did not get the attention many recent bank mergers have received.
But W. Keith Smith, vice chairman and head of Mellon's trust and investment services, ranks the acquisition of Buck Consultants Inc. as one of the most important the bank has made in recent years. He compares it to the much-ballyhooed purchases of Boston Co. and Dreyfus Corp., two companies that gave Pittsburgh-based Mellon a sizable presence in mutual fund and custodial trust services.
The Buck purchase, which closed July 1, is a good example of how banks are entering businesses that have only a passing resemblance to commercial banking. Northern Trust Corp. is the only other major banking company to own such a company. It acquired Hazlehurst Associates in 1994.
Like Boston Co. and Dreyfus, Buck will help Mellon attract and retain customers as it diversifies its mix of businesses beyond traditional banking, Mr. Smith said.
Buck, which is based in New York, provides actuarial services to pension plans, helps companies design retirement programs for their employees, and provides consulting on compensation and investment management. In all, it serves more than $400 billion in pension assets.
The term "consultant" does not really apply to Buck, Mr. Smith said. Its business is data-driven, "much more like a custody business," Mr. Smith said. Mellon officials expect the demand for such services to skyrocket over the next several years.
Buck typically serves companies that have gone through a series of mergers and have had to track employee records through each change of status. The recordkeeping functions are so tedious and burdensome that many companies are turning to outsourcing companies.
Mellon is hoping for cross-selling opportunities. Buck has 5,000 corporate clients, and Mr. Smith believes the bank can sell its institutional trust and personal investment products to many of those companies.
Northern Trust officials said its acquisition of Hazlehurst attracted more than 50 new custodial trust customers. Moreover, Hazlehurst's business has been growing fast enough to justify doubling its staff to 300 since Northern bought it, a spokeswoman said.
Mr. Smith has similar hopes of growth through being able to offer yet another service that could make Mellon more attractive to efficiency-minded companies.
"As corporate staffs become thinner and global pressure forces companies to keep costs down, corporations will reduce the number of people they buy services and goods from," Mr. Smith said.
Adding such a new and different type of businesses is okay, say analysts, as long as Mellon does not spread itself too thin across too many specialties.
"The trade-off is there is an additional degree of operating risk when you add additional businesses," said Michael Mayo, an analyst with Credit Suisse First Boston. "So far, Mellon's plans have panned out."
Mr. Smith sees little danger "as long as your products are in a family of businesses that are related and are going to the same client base."
