Mellon Financial Corp.'s asset management arm was the subject of speculation again Monday; this time the chatter had the Pittsburgh company pursuing a European expansion, specifically in Germany.
Last week Ruchi Madan, an analyst at Citigroup Inc., said Mellon should consider options, such as spinning off the unit, that could increase the value of Mellon's stock. But on Monday analysts said expansion seems more likely than a spinoff.
Financial Times Deutschland reported Monday that Mellon has talked with the German banking company WestLB AG about taking as much as a 50% stake in WestAM, its asset management unit. WestLB has spoken to several asset managers, and the talks with Mellon are the most advanced, the German edition of the British paper reported.
Jacqueline Reeves, an analyst with BankAtlantic Bancorp Inc.'s Ryan Beck & Co., said Monday that a deal with WestLB would seem to be "in keeping with some of their expansion efforts."
"They have utilized joint ventures a lot, and typically, from their perspective, that does provide a good rate of return," she said.
A year ago Mellon bought the rest of Pareto Partners, a London currency manager in which it already had a 30% stake. It bought the rest of the London investment manager Newton Management Ltd. in 2000, two years after acquiring a 75% stake.
Ken Herz, a Mellon spokesman, said it does not comment on deal speculation. He did say, however, "We've stated publicly we are interested in buying asset management and asset servicing companies. We're interested in the U.S. and Europe."
A WestLB spokesman in Dusseldorf said it had no comment on the report.
In May, WestLB said that WestAM, which manages $80.9 billion for more than 500 institutional customers, has been focusing on international expansion of its distribution network.
Mellon has $3.4 trillion of assets under administration and $738 billion under management.
In a report last week upgrading Mellon's stock to "buy/medium risk," from "hold/medium risk," Citi's Ms. Madan wrote that the company ought to consider some "creative strategic actions" to add value to its stock.
Spinning off its asset management arm would be Mellon's "most realistic near-term option," she wrote. The unit could be combined with another large asset manager, such as Merrill Lynch & Co.'s, the note said.
She also wrote that Mellon could pursue a merger with another trust bank.
Mellon's stock, which rose 4% Friday following Ms. Madan's upgrade, fell 0.5% on Monday.
Richard X. Bove, an analyst at Punk, Ziegel & Co., said a deal with WestLB would make sense for Mellon, which has a history of joint ventures.
"They've got a stated desire to add asset management companies, so that rumor does make sense," he said.
Mellon has excess cash from the $405 million sale of its human resources benefits administration business in May, so the timing is right to expand the asset management business, Mr. Bove said.
"This is a good business, and Mellon is likely to expand it, not sell it," he said. Ms. Madan and a Citi spokesman did not return calls Monday for comment.
