Mellon to use City as base for European expansion

Mellon financial Corporation, the US asset manager that owns the Newton Fund Management operation, is investing £7 million in a City headquarters ahead of a push into Europe. The initiative is being funded by the £1.4bn proceeds from the recent sale of Mellon's retail banking unit to Royal Bank of Scotland.

Mellon, which expects to have a staff of 2,500 in London by 2003, wants to expand both its asset management and so-called asset custody operations in Europe in the wake of the RBS deal, which finalised its withdrawal from retail banking. Asset custody refers to the processing and settlement of share trades conducted by institutional fund managers.

Jon Groom, the president of Mellon Global Investments, said acquisitions would be central to the group's push for greater geographical reach and a wider product offering. "We are actively looking at deals over here," he said.

The asset custody market in Europe is dominated by the likes of Deutsche Bank, HSBC, BNP Paribas and ING Barings. Mellon has already started to win UK custody clients through a joint venture with ABN Amro, the Dutch bank.

In asset management, Mellon is aiming to build its Mellon Global Investors brand through opening up sales offices across Europe and offering customers more exotic investment products, including hedge funds.

Mellon sold its New England-based retail operations to RBS in July having committed itself to becoming a focused asset management group. In the US, such firms enjoy higher stock market ratings than retail banks.

Meanwhile, the Bank of International Settlements will call today for better co-operation between the auditors of banks and the industry's regulators.

Its Basel committee on banking supervision will issue a best practice paper calling on banks to set up an internal auditing unit that can cover all aspects of their activities.