If a sale of Mellon Bank goes through, the vaunted Mellon name won't vanish from western Pennsylvania - it just won't hang on your neighborhood branch office anymore.
Mellon Financial Corp., the bank's holding company, is in talks to sell its consumer bank subsidiary to Citizens Financial Group of Providence, R.I., sources at Mellon confirmed.
Citizens is a wholly owned U.S. subsidiary of The Royal Bank of Scotland, Great Britain's second-largest bank.
A sale of Mellon Bank, valued by analysts at about $3 billion, would affect:
The talks were first reported by the Pittsburgh Tribune-Review on Friday.
'Everybody ought to sit tight for the time being,' said Bert Ely, the head of Ely & Co., a bank consulting firm based in Alexandria, Va. 'No one should overreact to this or feel like they need to run out and change their bank.
Mellon's trust customers should not be affected if the deal goes through. Their business is held by the Mellon Private Asset Management subsidiary of the holding company.'
Ely and other industry observers say it would take at least six months to close such a deal, and probably far longer. Ely also doubts Citizens would close many branches, if any.
'You're not going to get a lot of branch closings, which would be disruptive,' he said. 'And, in this case, you don't have any overlapping branches.'
Citizens is the holding company for Citizens Bank, which operates 340 branches in Rhode Island, Massachusetts, Connecticut and New Hampshire. It operates no branches in western Pennsylvania.
Citizens also operates 800 automated teller machines around New England. The institution has nearly $31 billion in assets (mostly loans), compared with about $46 billion at Mellon Financial.
'It's a bold move on the part of The Bank of Scotland,' Ely said.
Its Citizens unit has acquired 18 financial institutions since 1988, including an 87-branch institution in Boston last year. Just last month, Citizens signed a deal with Stop and Shop to construct Citizens Bank branches in about 100 of its supermarkets in the Boston area.
'Systems integration is what could become a nightmare,' Ely cautioned. He referred to the pitfalls that plague many bank mergers over uniting the operational guts, such as payroll and bank account records. But he gave Citizens management high marks on integrating banks.
'Larry Fisher has been doing quite a job building Citizens, which started in Rhode Island,' Ely said, referring to Citizens' longtime chairman. 'They have been building quite a presence in New England.'
Mellon was a pioneer in supermarket bank branches about a decade ago and operates about 100 branch offices inside area Giant Eagle supermarkets.
At the same time, Mellon spent much of the 1990s purchasing non-banking companies, such as mutual fund powerhouse Dreyfus Corp. and trust services giant The Boston Co.
A deal with Citizens would remove the core of Mellon. During that decade of diversification, Mellon Financial has used the tag line: 'a diversified financial services company with a bank at its core.'
In some ways, a sell-off of Mellon Bank would return the institution to its roots. Its forebear, T. Mellon & Sons, was not a conventional consumer bank. Rather, its core business in the late 1800s was providing the seed capital for Pittsburgh companies, including local titans such as Alcoa, Koppers and Gulf Oil.
Today, that's called venture capital. And the modern corporation's Mellon Ventures is this region's largest venture capital firm.
Officially, Mellon would not comment yesterday - to the media or its own employees - on the proposed deal.
'We do communicate frequently with our employees,' said Mellon spokesman Ken Herz. 'But in a situation like this, we can't comment.'
Chairman and Chief Executive Martin McGuinn was on vacation this week and could not be reached, Herz said.
Citizens Financial spokeswoman Barbara Cottam declined comment.
The exact status, price or other terms of the deal was not clear yesterday. One source at Mellon said an announcement could come as early as next week.
For crosstown rival PNC Bank, a Mellon transaction could spell opportunity.
'We've shown a commitment to the retail business,' said spokesman Pat McMahon.
'While we can't speculate about the outcome of the possible deal, a change like this one would create opportunities that PNC could pursue from a position of strength.'
He said that after Charlotte, N.C.-based First Union took over Philadelphia giant CoreStates Bank in 1999, PNC picked up some $1 billion in new deposits over the next two years.
'We feel like that experience would serve us well in the event of significant change in the Pittsburgh market,' McMahon said.
A Mellon deal with Citizens would not be the first time a foreign bank corporation bought a U.S. bank, or even a Pennsylvania bank.
Dauphin Deposit Bank, based outside Harrisburg, was sold to Allied Irish Banks in 1998 for $1.4 billion. It's now called Vartan National Bank.
What's more, the nation's ninth-largest banking concern is not even American-owned. HSBC North America Inc., with holdings that include Marine Midland Bank of Buffalo and Republic National Bank of New York, is a unit of Hong Kong and Shanghai Banking Corp. And Deutsche Bank of Germany owns Bankers Trust of New York.
Mellon has been exiting traditional banking businesses for more than two years.
Since McGuinn became chairman and chief executive of Mellon in January 1999, he has shaken up the financial services corporation. Right after taking the CEO reins from Frank Cahouet, McGuinn sold its mortgage-lending business and its credit card business - two major lines of bank business for Mellon.
Most recently, Mellon sold two of its lease-finance businesses to GE Capital in early June. In May, Mellon sold its asset-based lending unit to ABN AMRO North America Inc., a Dutch-owned bank.
'Markets change, and competition changes,' McGuinn said at the time of the Dutch deal.
'Mellon is just continuing the strategy they'd made clear sometime ago, although this is a more overt move,' said David Martin, managing director of Sandler O'Neill & Partners office in Coraopolis.
'You have to applaud Mellon for having the courage of their convictions,' Martin said.
But by casting off its retail bank, Mellon could sever perhaps its best source of customers for generating other business, said Robert Kanters, senior vice president of Legg Mason Wood Walker. For example, banks traditionally try to persuade depositors to let their institution provide such services as trust and money management.
'If you talk to some of the smaller banks, such as FNB Corp., which recently acquired Promistar Financial Corp. of Johnstown, they want the retail bank business, so they will have a base on which to develop a fee business,' Kanters said.
Thomas Olson can be reached at tolson@tribweb.com or (412) 320-7854.
