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Mellon looking to acquire more money management businesses

| Saturday, June 18, 2005

Mellon Financial Corp. says it intends to acquire additional wealth management businesses, and one analyst said that's a prudent course.

Mellon finally seems to be headed in the right direction after decisions in recent years that have been criticized by analysts, said Richard Bove, of Punk Ziegel, a research and investment banking firm in Tampa.

"I think the money management business has some growth in it, so investing there makes sense," Bove said Friday. "I think there will be plenty of opportunities in the United States to buy funds of money management companies."

Mellon Vice Chairman Steven Elliott said at an investment conference last week in Boston sponsored by the firm of Keefe, Bruyette & Woods that the company continues to look for acquisitions "of modest size" and in geographic areas where Mellon doesn't currently have a presence.

Bove applauded Mellon for its recent decision to sell its human resources business to Affiliated Computer Services of Dallas for $405 million, although he said the company's original decision to enter that business was a mistake.

He and some other analysts also have criticized Mellon for selling its retail branches to Citizens Financial Group in December 2001, but he said now things seem to be turning around for both of the company's main business segments -- asset management and corporate services.

"I think that the worst is over for those two industries and that the outlook for those two industries has gotten slightly better, and therefore the outlook for Mellon is slightly better," Bove said. Mellon also may find candidates for acquisition in Europe as well as the U.S., he added.

"Instead of pursuing a business that had the wrong structure and the wrong price point, they sold it," he said. "The benefit of that is they will get another chance to invest in the sectors they really like and the money will go into their two core areas."

At Mellon's annual shareholders meeting in May, Mellon Chairman Martin McGuinn said the sale of the human resources unit gave Mellon additional flexibility and increased its opportunities to reinvest in its core businesses and support strategic growth opportunities.

And at the investor conference, Mellon officials explained that their strategy also includes returning some excess capital to shareholders in the form of dividends and share repurchases. According to the company, about 80 percent of the proceeds from the sale of the human resources unit and the proceeds of a sale of interest in Shinsei Bank of Japan were used in the repurchase of 6 million shares of stock in April.

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