Robert P. Kelly, Mellon Financial Corp.'s chairman and chief executive officer, says the Pittsburgh financial services company's strategy to be introduced in November will sharpen its focus on the asset management and custody businesses "that are global and growing rapidly."
To improve the performance of some Mellon retail funds that are "not good enough," the company will incorporate the strengths in strategy and distribution of its institutional business, he said.
Mellon might also reshape its retail brand strategy, Mr. Kelly said. The company has three retail brands - Dreyfus, Newton, and Mellon Asset Management - and an analyst said it probably needs to keep two of them.
Mark T. Fitzgibbon, an analyst at Sandler O'Neill & Partners, said Mellon has been bringing its retail functions together in the past 12 to 18 months. However, he said, "I think Mellon needs at least two brands, one for inside the U.S. and one for outside the U.S. because Dreyfus doesn't have the cachet that Newton does in Europe."
"They might change some of their approaches," he added, "but they will probably end up keeping their boutique approach. That has been Mellon's approach for a long time. … I don't think they will slam everything together into one brand identity."
Both Mr. Kelly and the analysts said the company would remain an acquirer as it pursues its global strategy.
The Mellon CEO told the Lehman Brothers Financial Services Conference on Wednesday, however, that, though the company has made a couple of deals since he took the helm in February, he also wants to grow organically by improving manufacturing and distribution.
"Simplistically, we are in two huge businesses that are global and growing rapidly," he said. "Our strategy is very straightforward. We want to outperform in both asset management and asset servicing. We want to provide superior investment management performance. … We want to have strong organic growth in both assets under management and assets under custody."
Mellon, which has $870 billion of assets under management, is analyzing "myriad" options, and Mr. Kelly said, "everything is fair game" when the company unveils its strategy, including the possibility of a revamped retail branding strategy. Ron Gruendl, a Mellon spokesman, said it would announce the results of its strategic review on Nov. 13.
Richard X. Bove, an analyst at Punk, Ziegel & Co., said he expects Mellon's strategy to focus on acquisitions to develop its asset management business.
"They are going to look to acquire money management companies in the U.S. and try to move overseas to continue to make aggressive acquisitions there," he said.
Mellon has made two overseas moves in the past five months. In April, it launched West LB Mellon Asset Management, a joint venture with the German asset manager WestLB AG, to increase its presence in Germany and France. And in May it announced it would buy Walter Scott & Partners Ltd., a Scottish equity investment firm with $27 billion of assets under management. The deal is expected to close in the fourth quarter.
Mr. Kelly said at the conference that the two deals reflected Mellon's continuing desire to grow globally. It "will look for more deals to add distribution and add more products that we don't have," he said.
Mr. Fitzgibbon, the analyst, said Mr. Kelly was hired as "an acquisition-minded guy." He expects the company to unveil an "anticlimactic" new strategy, the analyst said, in which it maintains its position as a buyer. He said he looks for Mellon to keep making small acquisitions to supplement its business.
"From a 10,000-foot view, I expect that Mellon won't radically changes its business with this new strategy," he said. "This is all about fine-tuning."
Most of Mellon's retail funds have two- or three-star ratings from Morningstar, Mr. Kelly said, and that is "not good enough." "On the asset management side, we want to improve our fund performance over the next two to three years," he said. "This won't happen overnight."
The company soon will use its institutional capabilities to introduce retail products, he said. This will include an enhanced fixed-income fund, an international bond fund, and a global growth equity fund.
"Intermediaries want new, interesting products with good institutional track records," he said.
Mellon will also look to keep expanding and developing its private-client business, Mr. Kelly said. It has expanded significantly in the past four or five years in California and Florida, he noted, and he hopes to grow in Texas in the next few years.
"We are continuing to invest in high-growth areas and in wealthy areas in the Northeast," he said.
"I see [Mellon] as a growth company with a few businesses where the margins should do better," he added.
