Magazine article American Banker

Mellon Buyback Absorbed Most of Deal Proceeds

Magazine article American Banker

Mellon Buyback Absorbed Most of Deal Proceeds

Article excerpt

Two months after announcing an agreement to sell its human resources consulting and outsourcing operations, Mellon Financial Corp. told analysts how it is spending the money.

Chairman and chief executive officer Martin G. McGuinn said Thursday that the Pittsburgh company had repurchased 6 million shares on April 25. It used the proceeds of the first-quarter sale of its remaining investment in Japan's Shinsei Bank plus those expected from the sale of its human resources division to Affiliated Computer Services Inc. of Dallas.

That $445 million cash deal is scheduled to close by June 30. Mellon had declared a first-quarter pretax gain of $197 million for the sale of the Shinsei stake.

The repurchases have used up about 80% of the excess capital expected from the two deals. Mellon repurchased 1.5 million shares in the first quarter and 8.4 million last year.

Speaking Thursday at an investor conference in Pittsburgh, Mr. McGuinn also reiterated Mellon's profit and revenue expectations and outlined a plan to reduce costs at its Dreyfus Corp.

Mellon expects revenue growth of 8% to 9%, diluted per share earnings growth of 11% to 14%, and return on equity of more than 20%, he said.

The company had reported a first-quarter profit rise of 23% from a year earlier, to $305 million, or 72 cents a share. Revenue of $1 billion was up 14% from a year earlier and 16% from the fourth quarter. Full-year profits came to $796 million, or $1.88 a share, 10 cents more than the average of analysts' predictions.

Mellon said it plans to "reengineer" Dreyfus, its asset management business, over the course of the next year. The reorganization will include some client attrition, it said, but should save $20 million to $25 million a year. Mellon has $4 trillion of assets under administration.

Mr. McGuinn reiterated an intention to concentrate on organic growth by "capitalizing on growth opportunities in asset management and securities services and to maintain our leading position in payment services. …

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