Mellon Joint Venture With Royal Trustco
Mellon Bank Corp. has taken a minority stake in a cross-border alliance for securities processing in Canada with Royal Trustco Ltd.
The deal came barely a month after Canadian regulators blocked Mellon from taking a majority interest in a similar venture with another Canadian trust company, National Trustco.
Under the pact with Royal Trustco, Mellon's Canadian subsidiary has taken a 9.9% stake in the R-M Trust Co., a chartered trust service that will provide stock and bond transfer and debt trusteeship to Canadian companies.
Toronto-based Royal Trustco is Canada's largest trust company, with $125
billion in assets under management. Though Canada has different regulations for trust companies and banks, both increasingly offer similar services.
The pact lets Pittsburgh-based Mellon raise its stake to a majority after Canada enacts new banking legislation, said David Dunlop, senior vice president in charge of corporate financial services at Royal Trustco.
The joint company is the first set up between a U.S. and Canadian bank in the securities-transfer area. It is also the first move by Mellon bank to expand its rapidly growing stock transfer business outside the United States.
In September, under legislation that bars banks from owning more than 10% of a trust company, Canadian regulators blocked Mellon from setting up a venture with National Trustco.
Mellon has been running National Trustco's stock and bond transfer operation as a so-called "private label" service since last year and will formally bring that business into the new company when legislation permits.
Royal Trust has about 1.2 million accounts and National 800,000. They would make Mellon's securities transfer operation the second biggest in Canada after Montreal Trust, Mr. Dunlop estimated.
Mellon has been steadily expanding its securities transfer business amid a wider consolidation of that banking speciality. With some nine million account holders, the bank ranks second in securities transfer overall after First Chicago Corp.
Jim Aramanda, senior vice president, said the latest venture is part of a longer-term strategy by Mellon to build its volume and lower unit costs.
The new Canadian unit is to begin operations before yearend.
Mr. Dunlop said slow growth in securities transfer, the high costs of investing in new technology, and the advantage of setting up a cross-border operation were behind the joint venture. "To stay in business, we would have to make an investment that would be prohibitive."