Mellon Financial Corp.'s private wealth management group plans to expand aggressively this year and is looking to make acquisitions in several high- growth states, its chief says.
David F. Lamere, a Mellon vice chairman and the private wealth management group's head, said his unit is perceived as a bicoastal operation and he wants it to develop a presence in the middle of the country, both north and south. He said this could mean growth in places such as Texas, Arizona, and Chicago as well as additional deals in fast-growing areas where Mellon already has a presence such as California and Florida.
"We have learned that acquisition is the predominant way to expand geographically into areas we don't have a big presence in," Mr. Lamere said.
He expects to do as many as three deals this year, he said, after the four done in 2004.
The Pittsburgh company has been trying to create a national private banking network since 2001 when it sold its retail banking operations, including all its branches, to Providence, R.I.-based Citizens Financial Group, retaining only the business related to high-net-worth customers. It has spent the past five years leaving what it considers low-profit operations, including credit cards and mortgages, and devoting the bulk of its resources to building asset management, securities processing, and other fee-based businesses.
As Mellon shuttered its retail businesses, it has expanded the private wealth business, which has made seven acquisitions since 2000 in an effort to broaden its footprint.
The private wealth unit has $78 billion of assets under management and 60 offices - in California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Kentucky, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and Washington. Mr. Lamere said the unit's minimum relationship has $1 million of investable assets but that its "sweet spot" is individuals with at least $10 million to invest.
It had entered Rhode Island in September with the purchase of privately held Providence Group Investment Advisory Co.
In August, Mellon bought Pareto Partners to develop its alternative investment, currency management, and global fixed-income asset management businesses. It had already owned 30% of Pareto, a London currency manager.
In July, Mellon announced it would buy Paragon Asset Management Co. in Las Vegas; the deal's closing added about $600 million of client assets.
Since a deal announcement in June, it has bought Evaluation Associates Capital Markets, a Norwalk, Conn., hedge fund manager that offers hedge fund-of-funds and manager-of-manager strategies. It managed $2.7 billion of hedge fund-of-funds assets and invests in event-driven, relative value, and directional strategies.
"It is hard to predict how many deals we will make this year, but it is hard to think we will do more than three," Mr. Lamere said. "Of course, there are years we won't do any deals. The combination has to be right."
Mr. Lamere said Mellon carefully looks for deals in places where wealthy people congregate and that have a strong growth dynamic and a "favorable competitive landscape." Above all else, he said, is opportunity.
"There are a lot of regions we would love to grow into, but the opportunity just isn't there," he said.
Making a purchase in a region is just the first step toward growing there, Mr. Lamere said, because the deal just gives his unit access to a new set of clients.
"A deal is just an entrée to a location where we may be able to develop clients and we don't have a presence," he said. "A deal allows us to develop credibility and attract qualified and important professionals in one swoop. It just gives us a chance for our platform to grow."
Mr. Lamere said Mellon has been able to expand assets in each place where it has done a deal. Since the Paragon deal in July, Mellon has increased assets by 10% in the Las Vegas area, and it has had 40% asset growth in Atlanta since the Arden Group deal there in 2003, Mr. Lamere said.
Assets under management by Mellon's private wealth management group have grown from $66 billion at yearend 2002 to $78 billion at Dec. 31, 2004. Mellon Financial Corp. managed $707 billion at Dec. 31.
Mr. Lamere said developing assets and market share is an outcome for, rather than a direct goal of, his unit.
"When we are looking to acquire, there isn't a model firm or a template," he said. "We are looking for attractive location and an organization with strong reps and strong community ties. We need good people who view client service the way we do."
"If we were just after market share," he added, "we wouldn't just buy firms with hundred of millions in assets. We want good, long-term relationships. To be honest, we'd prefer smaller firms if their mission matches ours."
Mr. Lamere said his unit also sees opportunities to expand volume through direct sales and more client referrals.
"It is a real balancing act," he said. "A lot of firms fall into the trap of just pushing the product of the day. We want to develop relationships by finding services that customers fundamentally need." Mellon wants to help clients set an asset allocation strategy and then find products and services to fulfill it, he said.
"Ultimately, we want to help teach clients what they need to be diversified," he said.
"I think 2005 will really be a continuation of what we have been doing here at Mellon because growth is the agenda," Mr. Lamere said.
Analysts say that companies like Mellon have to be cautious about how quickly they grow through deals.
"A lot of it depends on size, but firms have to be sure not to grow beyond their capacity," said Burton Greenwald, a Philadelphia analyst. "Acquisitions are an excellent growth strategy, but deals just for the sake of growth never work [in the] long term."
Mr. Lamere said Mellon is not naïve on that score and will continue to be cautious as it grows.
"We know that many financial services acquisitions over the last 20 years have not worked," Mr. Lamere said. "We believe we have a higher opportunity to be successful because we spend time on the details. We get to know the people and work with them to get them to understand what we are trying to accomplish. This reduces the chance of failure, and the firm can grow from there."
