Mellon Bank Corporation
Mellon Bank Corporation
Incorporated: 1869 as T. Mellon & Sons
Assets: $31.2 billion
Stock Index: New York
In Pittsburgh, the name Mellon has been synonymous with banking for nearly a century and a half. A multi-bank holding company, Mellon Bank Corporation is comprised of banks developed by the descendants of Mellon’s founder, Judge Thomas Mellon. The company boasts a particularly successful track record in bonds, data-processing innovation, and personal trust management. Approximately 400 small banks depend on Mellon to fulfill their data-processing needs, while the personal-trust department is one of the largest in the United States. Mellon survived more than its share of corporate crises in the 1980s, but renewed emphasis on such services as trust management, investment, data processing, and cash management have helped bring the corporation back to the successful regional status it enjoyed under Thomas Mellon in its first few decades.
Born on a potato farm in Ireland in 1813, Thomas Mellon decided at an early age that farming was not his life’s calling. When he was five years old, his family moved to Pennsylvania, where he could often be found reading a book as he rode a plow across his father’s fields. He became a lawyer in 1839, and although his practice did well, his investments in real estate, construction, and mortgages fared even better. In 1869 Judge Thomas Mellon retired from public service and founded T. Mellon and Sons, a private banking house at 145 Smithfield Street in Pittsburgh.
The bank prospered during the postwar years, and a second bank, run by Mellon’s sons, opened soon after the first. In the Panic of 1873, when half the banks in Pittsburgh failed, the Mellons never closed either bank. Although Thomas Mellon died in 1908, his sons, Andrew and Richard, were able to build upon their father’s foundation to create the giant that would eventually play a key role in fueling industry throughout Pennsylvania and must of the rest of the country.
The Mellons invested their profits from the bank in other enterprises, such as Alcoa (Aluminum Company of America), originally known as the Pittsburgh Reduction Company, and Gulf Oil Corporation, founded by William Larimer, Thomas Mellon’s grandson. Gulf Oil grew to become the world’s tenth-largest industrial corporation, and Alcoa became the world’s largest aluminum manufacturer. The Mellons’ monumental success with Mellon Bank and other such ventures is partly responsible for the long-held belief in Allegheny County, Pennsylvania that “nothing moves in Pittsburgh without the Mellons.”
Four financial institutions founded in the 19th century have contributed to the growth and history of Mellon Bank. Besides T. Mellon and Sons, they were: the Farmers Bank of Delaware, established in 1807 by Henry Ridgely; the Harrisburg Bank, founded in 1814 by William Wallace, Robert Harris (son of the founder of the city of Harrisburg), and 11 other Pennsylvania businessmen; and the Girard Savings Institution of Philadelphia, established by Benjamin Wood Richards in 1835. This institution, which eventually came to be known as Girard Bank, was named in honor of Stephen Girard, a multi-millionaire who left $7 million to the city of Philadelphia and lent money to the American government during the War of 1812.
After serving as president of T. Mellon and Sons from 1869 to 1882, Thomas Mellon retired and turned the bank over to his son Andrew. Under Andrew’s leadership, the bank financed the creation of Union Transfer and Trust Company; joined the national banking system as Mellon National Bank in 1902; formed its first foreign bureau, in 1908, to provide banking services for customer activity outside the United States; and established a long tradition of growth through acquisitions and mergers.
In the late 19th century, goods were often sold with a three- or four-month grace period between delivery and payment due dates. T. Mellon and Sons profited from the common practice of buying at a discount the documents that showed the amount due and holding them until maturity to collect the full value. This business made T. Mellon and Sons the largest private bank between New York and Chicago. The bank soon decided to expand its range of operations, however, to include trust estates and related work, and created the Fidelity Title and Trust Company with the help of other investors. Fidelity was an instant success—so much so that it found itself turning away business in order to avoid conflicts of interest between clients. Consequently, in 1889 it set up its own rival company, the Union Transfer and Trust Company, which became the Union Trust Company not long after.
In an effort to consolidate the Mellons’ banking interests, the family decided in 1902 that Mellon National Bank should become an almost wholly owned subsidiary of Union Trust.
In 1921, Andrew Mellon was appointed secretary of the treasury by President Calvin Coolidge. While he served in Washington, D.C., remaining under presidents Warren Harding and Herbert Hoover, his brother Richard became president of the bank.
Since Mellon National Bank was a federally chartered corporation and Union Trust and Union Savings were state banks, the Mellons were able to take advantage of both banking systems. Together, the banks could finance virtually any enterprise in the country by the 1920s. In 1929, Richard Mellon formed Mellbank Security Company, a bank holding company that helped save numerous smaller banks in western Pennsylvania during the Great Depression. Mellon’s knack for giving sound advice to its customers, together with its ability to maintain sufficient liquidity and one of the highest ratios of cash to deposits in the nation, played a major role in the bank’s survival through the 1930s. From 1931 to 1932, the combined earnings of Mellon National and Union Trust totaled nearly $12 million. Indeed, since the Mellon name and conservative reputation were well known by the 1920s, many of the panicked customers who withdrew their savings from other banks after the crash flocked to Mellon National. Seeing the crowds team into the bank, Richard Mellon reportedly muttered “I told those damn architects to make more room in the lobby.”
After Richard’s death in 1933, his son, Richard K. Mellon, took over as president. When Mellon National Bank and Union Trust Company merged in 1946, Richard became chairman of the newly formed Mellon National Bank and Trust Company. Mellon Bank also entered the retail market by expanding its branch network and merging with Mellbank.
By the middle of the 20th century, Mellon began to build a reputation for technological innovation, especially in cash management. The company bought its first computer in 1955, one of the first banks in the nation to do so. In 1958 Mellon established the Mellbank Regional Clearing House, the forerunner of its Datacenter Group, for overnight processing of checks from correspondent banks.
One measure of Mellon’s power was the size of its trust assets: in 1967, Mellon Bank controlled a third of all the trust assets in Pennsylvania. That same year “outsiders”—people who were not Mellon descendants—first filled the bank’s top two positions. Richard K. Mellon became honorary chairman of the board, John A. Mayer, president since 1959, became chairman, and A. Bruce Bowden was appointed president. As president, Mayer had helped Mellon double its savings deposits, nearly double its mortgages holdings, and issue credit cards to 250,000 people. His success was the fruition of a program begun by Richard K. Mellon to expand Mellon’s reach from its traditional base of wealthy individuals to all kinds of banking customers.
In 1972, Mellon National Corporation was created as a one bank holding company to own Mellon National Bank and Trust Company, which officially became Mellon Bank.
By the mid-1970s, Mellon was still one of the most conservative banks in the country, a philosophy that served it well in 1975, when many progressive banks got into trouble with real estate investment trusts, a popular investment item in the 1960s and 1970s. Banks had lent billions of dollars for real estate and construction ventures. With these loans, real estate development companies built so many condominiums, single-family homes, and other buildings that they found themselves short of buyers. Mellon, however, had advised its customers to avoid the real estate investment trusts and was untouched by this crisis.
In 1982, Mellon’s assets totaled $19 billion, more than the combined assets of the next three largest banks in Pittsburgh. The company had also become a strong commercial lender with sophisticated credit-accounting techniques, and managed nearly $13 billion in trusts, including many corporate pension and benefit plans. “It was always easy to identify the leadership in Pittsburgh,” Joseph Lasala, a former Philadelphia city representative, told Philadelphia magazine in 1986. “There’s one of everything. One big industry—steel... and one big bank—Mellon.”
On the whole, however, the 1980s were a difficult time for Mellon Bank. Although it nearly doubled its assets between 1982 and 1987, its quick expansion overseas and into “high growth industries” such as energy and real estate was poorly timed. Under the leadership of Chairman J. David Barnes, Mellon created an energy lending division and a loan production office in Dallas, Texas, in 1982—just after oil prices peaked. Foreign operations, which accounted for nearly one-third of Mellon’s profits in 1982, caused some of the worst damage. Like many large banks, Mellon’s international expansion was poorly timed. Overexposure in Mexico, Brazil, and other Third World nations resulted in many problem loans. Mellon eventually closed almost half of its 20 foreign branches. The company also realigned its international operations to focus on multinational corporate customers rather than overseas borrowers.
The merger of Mellon and Girard Bank in 1982 also exemplified Mellon’s eagerness to expand. Girard had merged with the Corn Exchange Bank in 1951, installed its first computer in 1962, and, over the next ten years, pioneered the development of automated retail services in Philadelphia. Its automated bank system would eventually gain industry recognition as state of the art. Girard also acquired the Farmers Bank of Delaware in 1981, renaming it Girard Bank Delaware. Girard’s earnings dropped significantly in October, 1982, but Mellon finalized the merger anyway, in November, 1982. Girard’s growth came to a sudden halt after the merger, and in 1984 the bank’s shaky balance sheet—which included a vast portfolio of delinquent loans—contributed to a 14% decline in Mellon’s earnings for the year. It also prompted Mellon officers to head to Philadelphia to “Mellonize” things. Their take-charge approach made Girard veterans and customers uncomfortable. In addition to firing several Girard executives, Mellon went so far as to rename Girard Bank Mellon Bank (East), while Girard Bank Delaware became Mellon Bank (DE).
In 1985, Mellon, which had adopted the name Mellon Bank Corporation a year earlier, merged with Commonwealth National Financial Corporation, the Harrisburg-based financial-services holding company formed in 1969 by the merger of the Harrisburg National Bank and Trust Company, Conestoga National Bank, and the First National Bank of York. Mellon also enhanced its integrated banking software and financial data-processing systems through the acquisition of Carleton Financial Computations Inc., in South Bend, Indiana. Also that year, Mellon purchased several subsidiaries of the Fidata Corporation that offered securities transfer, securities pricing, and trust accounting services. By the late 1980s, Mellon was selling its data-processing expertise to some 400 small banks across the country.
Mellon entered the high-growth consumer-banking market in Maryland in 1986, when it bought certain assets of Community Savings and Loan, of Bethesda, and created Mellon Bank (MD). It also opened Mellon Securities Ltd., London to serve the investment needs of United States-based customers, and added Triangle Portfolio Associates to its eight investment-management subsidiaries.
In 1987, Mellon recorded the first loss in its history, due to increased reserves for Third World loans and for certain domestic credits. When this first-quarter loss was announced, stock shares plummeted and Chairman Barnes resigned. The Mellon family, which still holds 15% of the bank’s stock, chose an acting replacement for the CEO and, after an extensive search, approved the appointment of Frank Cahouet. Formerly president of the Federal National Mortgage Association, Cahouet is best known in the finance industry for reviving San Francisco’s Crocker National Corporation, although it was sold before he could complete his mission. Cahouet recruited Anthony P. Terracciano, former vice chairman at Chase Manhattan Corporation, as president and chief operating officer.
Cahouet immediately froze salaries and ordered the 19,500-member staff reduced by 10%, to Wall Street’s approval. The following year, in 1988, the company formed Grant Street National Bank, a separate entity created solely to clean Mellon’s bad-debt slate by liquidating many of its weak domestic loans. The bank is partly backed by Mellon funds and junk bonds, sold to investors who hope sales of property securing the bad loans will be profitable. If all goes according to plan, the complicated “good bank, bad bank” plan will allow managers to focus on healthier areas.
Cahouet’s plan is to return the company to its original position as a regional bank by becoming a more niche-oriented institution. Specifically, Mellon will concentrate on providing loans and other services to medium-sized companies, breaking its pattern of overextension to large, multinational corporations and foreign governments. This long-term goal to become a super-regional bank, however, puts Mellon in direct competition with PNC Financial, the parent company of Pittsburgh National Bank, which has operated very successfully on the middle-market level for years.
Mellon’s approach will be to emphasize its service businesses—trust and investment, data processing, and cash management—which show no signs of slowing down. In 1988, the company acquired Backroom Systems Group, which offers personal computer software designed to automate labor-intensive tasks for financial institutions. Determined to maintain its leadership in the data-processing industry, Mellon has also continued to develop BancSource, a data-processing system that will eventually perform all customer loan and deposit processing.
The final decade of the 20th century will mark the first time that Pennsylvania allows true statewide banking; previously, state law governed how many branches a bank could open beyond county borders. The new law will allow banks to offer services where they make sense in terms of market coverage, not physical boundaries. The 1990s will determine whether Mellon can fully exploit the region to become a leader in the super-regional market.
Mellon Bank, N.A.; Mellon Bank (DE) National Association; Mellon Bank (FL) National Association; Mellon Bank (MD); Mellon Bank (North) National Association; Mellon Bank (East) National Association; Mellon Bank (Central) National Association; Mellon Financial Services Corporation; The Commonwealth National Bank; Data-Link Systems Inc.; Mellon Bank International; Mellon Securities Trust Company; Mellon InvestData Corporation; Backroom Systems Group; Collection Services Corporation; InvestNet Corporation; Mellon Bank Canada; Mellon Securities Ltd. (England); Mellon-Pictet International Management Ltd. (England).
McCullough, C.H. One Hundred Years of Banking, Herbick and Held Printing Company, 1969; Hersh, Burton. The Mellon Family: A Fortune in History, New York, William Morrow and Company, 1978; Koskoff, David E. The Mellons: The Chronicle of America’s Richest Family, New York, Thomas Y. Crowell, 1978.