Mellon Bank Corp.'s recent agreements to acquire two leasing portfolios reflect a desire to diversify in asset-based lending - and to improve returns on traditional assets.
The deals - bringing $1.5 billion of assets from a Ford Motor Co. subsidiary and $150 million from the purchase announced this week of First United Leasing Corp. - put Mellon "in all three segments of leasing," said Jeffery L. Leininger, vice chairman for specialized commercial banking.
He described the segments as "small-ticket, mid-ticket, and traditional large leasing." Pittsburgh-based Mellon thus can meet the needs of small businesses through large corporations.
"Margins in this business are very attractive, way above traditional bank products," Mr. Leininger said.
First United is a niche player, doing leases of $5,000 up to $500,000, according to chief financial officer Kathleen O. Buesch. The specialist in office, medical, and light industrial equipment has annual revenues of about $35 million.
BankAmerica Corp., First Union Corp., and other major banking companies have likewise announced plans in recent months to buy leasing businesses. A day after Mellon announced its deal, Memphis-based National Commerce Bancorp. said it would buy Kenesaw Leasing Inc., Knoxville, Tenn., which leases office equipment and furniture. Terms of that deal, like Mellon's, were not disclosed.
But Mellon is signaling a somewhat different approach to the business.
While banks have traditionally offered big-ticket leases, such as on airplanes and rail cars, Mellon's targets do a large volume of transactions involving smaller equipment, such as computers and office furniture, at lower margins.
The Ford unit, for example, makes leases worth $250,000 to $1 million.
Dean Witter analyst Anthony Davis said $43 billion-asset Mellon is wise to diversify its leasing mix.
"The leasing business is more attractive for middle-market companies than traditional lending," he said. "Mellon is trying to get away from the commodity business and get into higher-value businesses."
In the Ford deal, Mellon agreed to pay $1.7 billion for the $1.5 billion of assets being divested by the USL Capital subsidiary.
Mellon's lease portfolio including First United and the USL assets would be $2.6 billion, equal to about 9% of total loans. The acquisitions are expected to close in the third and fourth quarters.
The two deals "position Mellon as one of the premier bank providers of lease financing in the United States," Mr. Leininger said.
It will have competition. Yet another leasing acquisition was announced last week - by Centura Banks Inc., Rocky Mount, N.C. It said it would buy CLG Inc., a computer and technology equipment lessor in Raleigh, N.C., which operates in 49 states and has $124 million of receivables.
Like Centura, National Commerce in Memphis cited a desire to move away from traditional lending. Assets and revenues of its acquisition, Kenesaw Leasing, were not disclosed. Warren Payne, Kenesaw's chief executive, said his company has eight employees and does business primarily in east Tennessee.
The pending purchase "is another step in management's long-term strategy to increase nontraditional banking business," said Thomas M. Garrott, chairman and chief executive of National Commerce.
"Clearly there's competition for these companies," acknowledged Mellon's Mr. Leininger. But he contended the bank company's recent deals would give it a strong foothold.