Shares of Mellon Bank Corp. sagged again on Thursday, as Wall Street continued to fret about the controversy swirling around Boston Co., the Pittsburgh bank's money management subsidiary.
Mellon was off 87.5 cents to $53.625 in late afternoon trading. The stock has surrendered 10.6% in value this week and has been the weakest major bank issue in the market.
"They're being punished for expectations that were too high a year ago," said Nancy A. Bush, an analyst at Brown Brothers, Harriman & Co., a critic of the $1.45 billion price paid by Mellon for Boston Co.
"At that price everything had to go exactly right to make it work, and it appears everything is not exactly right," she said Thursday.
On Monday, Mellon filed a lawsuit alleging Primerica Inc., American Express Co., and their brokerage subsidiaries had violated Mellon's agreement to buy Boston Co. Mellon's stock plunged 6.3% in reaction.
The suit asserts that Shearson Smith Barney Inc., a Primerica subsidiary, "willfully violated" the agreement by siphoning off mutual fund servicing business from Boston Co.
But the allegations may be difficult to prove in court and take lengthy litigation, Ms. Bush said. Primerica and the others have denied the charges.
Meanwhile. uncertainty may hang over Mellon's earnings. The bank has maintained that its results will not be seriously affected.
Mellon said its deal to buy Boston Co. from Shearson - which was then a unit of American Express - required Shearson mutual funds to continue to be serviced by Boston Co.
But Mellon charges that Shearson, combined with Smith Barney after being bought by Primerica, has established mutual funds that are "virtual clones" of Shearson funds handled by Boston Co.
Ms. Bush said it was known in September 1992, when Mellon Struck its deal, that American Express was "actively shopping" Shearson.
It was also known, she said that there was "aggressive pricing in that end of the business," with Mellon itself being one of the toughest price competitors.
"The X factor," she said, was Primerica chairman and chief executive officer Sanford I. Weill, "who has never been known as a shrinking violet" when it comes to financial industry competition.
But Mellon and its chairman, Frank V. Cahouet, also have their defenders.
They don't look too brilliant right now in having to bring this lawsuit," said Brent B. Erensel of UBS Securities.
But the perspective that should be taken," he said, "is that this is a cheap, but sophisticated regional bank with a very strong niche in money management funds processing.
"In the battle for revenue growth you have to ask yourself what banks will do when they are no longer subsidized by the yield curve, when the trading environment evaporates, and when loan-loss provisions stop declining," he said.