Hub will gain sway in buyout of Mellon

Mellon Financial Corp.'s $16.5 billion sale to Bank of New York Co. will put three Boston executives in control of major units of the newly merged company.

Mellon has three key units -- private wealth management, asset management, and asset services -- responsible for $5.2 trillion worth of business and roughly 2,600 employees based in the Boston area. When the sale closes, Dave Lamere , who now runs Mellon's private wealth management business, will lead the new Bank of New York Mellon Corp.'s combined wealth management division, which will control $150 billion in client assets and 81 offices worldwide. His colleague, Jim Palermo , who heads Mellon's asset services unit in Boston, will be co-chief executive of the combined company's unit, sharing responsibilities for the business with Tim Keaney , a Bank of New York executive.

And Ron O'Hanley , who runs Mellon's asset management business will become chief executive of Bank of New York Mellon's asset management operation.

Analysts said the sale creates a behemoth that threatens competitors by combining Mellon's strength in asset management with Bank of New York's strong global asset servicing business.

"I think this endorses in a pretty emphatic way that people need to be thinking about global scale and global reach," said Roger F. Hartley , managing director at Putnam Lovell NBF Securities Inc. in San Francisco . "I don't think it creates a necessity" for other mergers in the asset management business, he said, "but it clearly raises the bar."

The deal's significance wasn't lost on Ron Logue , State Street's chief executive, who yesterday said his company felt no immediate pressure to seek a merger but nonetheless said it was keeping an eye open for potential acquisition targets. In the meantime, Logue said Bank of New York Mellon will be a bigger but less focused competitor from which State Street can siphon off business.

"There's going to be some opportunity for short-term top-line growth," from clients fleeing the merging company, Logue said. "We're going to get our share of that."

State Street goes head to head with Mellon in the asset-management and securities-processing businesses, in which the companies manage cash, securities, and other assets on behalf of institutional clients and receive fees for handling related transactions. Just last year, State Street lost longtime money management client the Florida State Board of Administration's $113 billion asset management business to Mellon.

Bank of New York made a play for State Street in 1997 . The bank dropped those plans months later, only to make an unsuccessful $22.3 billion bid for what was then Mellon Bank Corp. , Mellon Financial's predecessor.

Mellon itself pushed into Boston in 1992 when it bought the Boston Co. for $1.5 billion . Two years later, it bought New York-based Dreyfus Corp. , then the country's sixth-largest mutual fund company, for $1.85 billion .

The company's shares closed up 6.8 percent yesterday, at $42.78 . Bank of New York's shares closed up 12 percent , at $39.75 . State Street shares rose $3.25, or 5.3 percent, to $64.75, as investors bet that the sector is ripe for more merger activity.

Bank of New York Mellon will keep its headquarters in New York and plans to shed as many as 3,900 jobs over three years , mostly through attrition.

In interviews yesterday, the executives leading Mellon's Boston operations said it is too early to tell whether Boston will lose any jobs and said that it is possible the company could grow here .

"As financial services grows, they grow to the benefit of both these businesses here in Boston," said O'Hanley, the Mellon asset management chief .

Gerard Cassidy , a banking analyst at RBC Capital Markets , said all of the Boston-based units should grow after the merger because money management and related businesses are growing broadly. Still, he cautioned that Mellon recently completed a strategic review that recommended that it relocate many of its jobs to cities like Pittsburgh, where it is headquartered, because it's much cheaper than doing business in Boston or New York.

Keith Reed can be reached at reed@globe.com.