Aftershocks: The Mellon Financial -- Bank of New York merger

Pittsburgh losing headquarters; job cuts in short term; over long term, employment will grow in city, companies say

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Bob Donaldson, Post-GazetteMellon Financial CEO Bob Kelly (right) and Gerald L. Hassell, President of The Bank of New York, at the press conference in Pittsburgh yesterday detailing their merger plans.

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On the Internet
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Listen to the news conference call


Two months ago, Mellon Financial boss Robert Kelly was in London on business when he got a phone call and a proposition from Bank of New York Chief Executive Officer Thomas Renyi.

"Would you consider a merger with Bank of New York?"

Intrigued by the thought, Mr. Kelly took the proposal back to Pittsburgh and, over the course of the following weeks, held a series of clandestine discussions and meetings that resulted in a $16.5 billion merger proposal that, if shareholders and regulators sign off, will close by July 1.

The transaction, announced shortly after 6 a.m. yesterday, will move Mellon's headquarters out of Pittsburgh 137 years after its founding, marking yet another loss of a venerable corporate icon for a city that has lost many in recent decades.

But Mr. Kelly and Mr. Renyi both pledged that Pittsburgh will play a big role in the new company -- called The Bank of New York Mellon Corp. -- and over time will employ even more locally than the 6,100 it does now, despite the near-term loss of roughly 600 employees.

The deal would create a titan in the financial services industry. The company will service $16.6 trillion in assets for huge endowments, mutual funds and pension plans. It also will rank among the top global asset managers with more than $1.1 trillion in assets under management.

The local spin yesterday was remarkably brighter than it was a decade or so ago, when Bank of New York and Mellon discussed mergers -- in 1995, then again in 1997 -- that went nowhere. The relations between the two financial institutions turned ugly a year later, when Mr. Renyi launched an unsolicited $23 billion bid to buy Mellon, a deal chastised and dismissed in a very public manner by then-Mellon CEO Frank Cahouet, who called it "ill-conceived" and raised questions about Mr. Renyi's ability to lead "such a complex company."

But the 74-year-old Mr. Cahouet, who engineered Mellon's push into the money management and servicing business with purchases in the early 1990s of the Boston Co. and Dreyfus, was singing a much different tune yesterday. Reached by phone, he said he is on board with the current Bank of New York-Mellon hookup, saying that "it's a different world" than 1998.

In the last eight years, both Mellon and Bank of New York have sold off their retail banking franchises to larger competitors and focused on a less-glamorous array of financial services -- Mellon's strength being asset management and Bank of New York's strength being the processing of securities. A merger in 1998, Mr. Cahouet said, was a "scorched earth" proposal that would have shifted all control to New York, silencing Mellon among the executive ranks, and "that is not the case'' with the new merger proposal, he said.

In fact, the Bank of New York-Mellon combination -- a stock transaction that will give Mellon shareholders a share in the merged company for each share they own -- has been billed by both sides as a merger of equals and calls for Mr. Kelly to succeed Mr. Renyi as CEO in 18 months. Mellon also will have eight directors on the 18-member board.

Mr. Kelly asked Mr. Cahouet, who still serves as "chairman emeritus," for his advice before completing the merger agreement, and Mr. Cahouet said he told the CEO to maintain the importance of Pittsburgh and keep the Pittsburgh-based board members involved in the new company. "It didn't fall on deaf ears," he said.

Still, losing the Pittsburgh headquarters hurts, Mr. Cahouet said. "Nobody likes that." But "on the other hand, the global base for the financial services industry is really in New York. That's just the real world."

Mr. Kelly said he "absolutely" argued to keep Mellon's corporate headquarters in Pittsburgh but that, in the end, New York was the more logical location.

"When you get down to the practical realities of the global financial marketplace, New York City is the financial capital of the planet and it is difficult to argue with that," he said.

The Canadian-born CEO came to Mellon in February after a stint as chief financial officer at Charlotte, N.C.-based Wachovia Corp., where he was in charge of several acquisitions and earned a solid reputation on Wall Street. Mellon's board, according to Mr. Cahouet, brought Mr. Kelly to Pittsburgh so he could "grow the company." If a merger resulted, the board wanted "somebody who was going to lead the combined company."

Now, less than a year after moving to Pittsburgh and buying a house in Sewickley, Mr. Kelly is packing his bags for New York, where he will work full time. "Five or less" senior executives will make the move and "a few" others in top management will maintain homes in Pittsburgh and commute to New York during the week. Mr. Kelly said he will keep an office Downtown and remain as a member of the Duquesne Club and the Allegheny Country Club.

Mr. Kelly was careful yesterday to reassure Pittsburghers that Mellon would remain an important part of this city's fabric. Less than 10 percent of Mellon's local workers will lose their jobs as a result of the Bank of New York deal, he said, out of a total of 3,900 cuts across the system.

New York, Boston and London are all big Mellon employment centers, along with Pittsburgh. "Pittsburgh will have fewer losses than any of the other cities," he said.

At the same time, Mr. Kelly said he is committed to creating 1,000 to 2,000 jobs in the Pittsburgh area over the next three to five years, adding people with strong technology and finance skills and taking advantage of this region's strong workforce and comparatively low cost of living. "We can say that with great confidence," he said, adding, "This is actually about growing our commitment to the city."

He provided several other assurances yesterday, including a promise that Mellon's Downtown buildings will keep their Mellon signs and that the combined company will stick to its naming rights deal at the Mellon Arena, home of the Penguins.

Banking analyst Gerard Cassidy called the deal a "mixed blessing" for Pittsburgh. "From an economic standpoint, over time, I believe it will be positive for Pittsburgh and Western Pennsylvania," said Mr. Cassidy, who covers Mellon for RBC Capital Markets in Portland, Maine. "Psychologically, it's a blow. Losing a corporate headquarters icon like Mellon is never easy to digest."


Dan Fitzpatrick can be reached at dfitzpatrick@post-gazette.com or 412-263-1752.


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