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.
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 banking industry 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.
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.
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," 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 Schiebler, senior managing director at Putnam Investments, Boston. "They're buying something that already has a certian 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'."
Bobroff said he thinks fund companies with $5 billion or less in assets under management are most vulnerable. Banks would find them easy to digest and could still make significant strides in their fnd business through such deals.
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 Wagoner, who played a key role in First Union's recently announced plan to acquire the $3.3 billion-asset Evergreen family of mutual funds.
Another reason not to expect a profusion of big deals is that they take great time and care to pull off. And it's generally thought that the mutual fund company must first be a willing seller.
"If somebody went in and tried to acquire Dreyfus on a hostile basis," said Frischling, the lawyer, "they might just have a lot of paper in their hand. If the board doesn't go along with it all the contracts go across the street."
Debra Cope is an editor with the American Banker, a sister publication of The Bond Buyer.