GERMANY – Mellon Financial Corp. is considering taking up to a 50% stake in WestAM, a German institutional fund provider that specialises in fixed income, according to the Financial Times.

Citing unnamed banking sources, the Financial Times Deutschland said Mellon was currently negotiating a deal with WestLB, the German Landesbank which is the parent of WestAM. They added that a letter-of-intent could be signed by mid-September.

The FT said the Landesbank is seeking to gain “critical mass in asset management” through a cooperation with the US house. Mellon is the world’s second-biggest asset manager with $738bn under management.

Neither WestLB nor Mellon was willing to comment on the reports.

For Mellon’s part, a stake in WestAM would enable it to break into the German institutional market, where it has made little impact so far.

WestAM has €27bn in assets under management in Germany, around €10bn of which are for Sparkassen, or savings banks that are part shareholders in WestLB. German pension funds account for just under €3bn of the total. Fixed-income mandates account for 44% of the portfolio.

Kevin Birch, WestAM’s German head who took over at the start of 2005, aims to raise institutional assets there to €40bn by the end of 2007. He also wants to ramp up WestAM’s mutual fund business in Germany, which only has €1bn in assets.

Birch reports to Luke Nunneley, chief executive of the WestAM group in London. The group has €67bn in assets under management worldwide.

Reports of Mellon’s interest in WestAM come more than a month after Volker Grüneke resigned as head of Mellon in Germany.

Grüneke became head of European sales at Ramius HVB Partners, a joint venture between Ramius of the US and German bank HVB that provides fund of hedge funds.

Grüneke was succeeded at Mellon in Germany by Michael Geier, his former number two.

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