WestLB: Mellon on a roll with asset management venture

21st September 2005

German public sector bank WestLB has greed an asset management joint venture with US group Mellon Financial that will see a new entity formed with an estimated $49 billion in assets under management. The deal will see the consolidation of both groups' German asset management businesses, while providing Mellon with a key distribution channel for its products through WestLB's network.

The new venture, which will be 50-50 owned between the two groups, is expected to be established in 2006 and will combine WestLB's asset management activities, branded WestAM, with Mellon's German operations. It is estimated that $37 billion of the new entities assets will be managed on behalf of German clients, giving the new group a powerful position in that market.

The deal looks particularly attractive to Mellon. The company has, in one swoop, managed to secure a distribution channel for its products through WestLB's global operations, covering UK, German, Italian, Spanish, Australian and Japanese markets. This now gives the company exposure to nearly every major asset management market in the world, and crucially strengthens its position in what it sees as its two key European markets - France and Germany.

However, the benefits to WestLB appear more strategic. The company will improve its product line, gain scale within its competitive home market and access to Mellon's support services to institutional asset managers. This should play to the strengths of West LB, which has historically been stronger on the client and distribution, rather than product, side of the business.

However, another key benefit appears to be the separation of WestLB's asset management business from its traditional role as a German Landesbank. The recent removal of the inherent state backing of the Landesbanken by the German state, in order to comply with EU regulations, has forced Germany's Landesbanken to focus increasingly on improving the profitability and efficiency of their operations, something which the joint venture would certainly appear to do.

The amount to which this has influenced the decision by WestLB is likely to remain unclear. However, with both groups set to benefit from the venture, it is possible that Brussels may have acted as an unlikely matchmaker.