Mellon Acquires Chase's Stock-Transfer Business
As part of its plan to leave nonstrategic businesses, Chase Manhattan Corp. has sold a securities-processing operation to Mellon Bank Corp.
The deal, quietly signed last month, is much smaller than Chase's most recent sale - of its $2.2 billion-asset leasing subsidiary. That sale was announced Monday.
But the transaction with Mellon was the first departure from a traditional banking business since Chase announced its plan to slim down. The details of the sale were not disclosed.
Completion in Early '92
Chase expects to complete the sale of the stock-transfer business, in which it keeps records of shareholders, by early next year.
"The game in this business is market share, and we have low market share compared to our competitors," said Susan Schoon, senior vice president at Chase. "This is an economy-of-scale business."
Banks have been leaving the stock-transfer business for five years. Most recently, for example, BankAmerica Corp., one of the biggest suppliers of stocktransfer services, sold its operation to Manufacturers Hanover Trust Co., another major player.
Among banking companies, a handful of players dominate the field: First Chicago Corp., Mellon, and Bank of New York Co.
AT&T Signed Up
First Chicago recently signed American Telephone and Telegraph Co. as a customer, strengthening its position at the top. AT&T has more shareholders than any other U.S. corporation. The Chicago company also bought J.P. Morgan & Co.'s business last year.
Bankers estimated that the 10 biggest companies in stock transfer - banks and nonbanks - control about 40% of the market.
In this back-office processing business, like all processing businesses, high volumes of transactions are needed to generate profits. Consolidation has benefited some companies, such as First Chicago and Mellon, by boosting their volumes and allowing them to bid aggressively for more business.
Mellon has historically grown its stock-transfer business by doing the processing for other banks. By taking over Chase's corporate clients, Mellon has taken a new road to expansion.
Deciding Not to Grow
Chase chose not to bid for additional business, which would have enabled it to grow through acquisitions. "It was not a business where we could be the market leader," said Ms. Schoon.
The sale of the stock-transfer business will let Chase focus on other institutional businesses, particulary corporate trust, where it is a major player, said Ms. Schoon. As a corporate trustee, a bank handles payments to investors in municipal bonds and corporate debt.
Mellon was the most logical buyer of Chase's business. For 15 years, Chase has employed Mellon to handle back-office processing for stock transfer, an arrangement bankers sometimes call "private labeling." Mellon has dozens of banks under similar contracts and expects others to follow Chase's lead.
Chase employees engaged in this business as administrators or customer-service representatives have been offered jobs at Mellon, Ms. Schoon said.