By David Benoit and Saabira Chaudhuri
The sleepy world of back-office banking is about to get a bit of
action following Trian Fund Management LP's purchase of a large
stake in Bank of New York Mellon Corp.
Trian, run by Nelson Peltz, said Monday that it has bought a
position valued at $1.05 billion in BNY Mellon, representing a 2.5%
stake. The move is rare in the world of activist investors, who
typically avoid regulated businesses such as banks.
Mr. Peltz, 72 years old, and Trian haven't had any discussions
with the bank's leaders, according to a person familiar with the
matter, but plans to reach out to management to discuss ideas for
creating more shareholder value.
While its plans for the bank aren't clear, Trian previously led
an unsuccessful campaign in 2011 to persuade BNY Mellon rival State
Street Corp. to separate its investment-management arm. BNY Mellon
has faced pressure to cut costs and consider selling or spinning
off some of its units, including its poorly performing
corporate-trust business, which processes principal and interest
payments for debt issuers and represents investors in defaults.
"Trian is a respected investment firm. We look forward to
engaging with them as we do all our investors," a BNY Mellon
spokesman said.
The BNY Mellon stake would be among the activist investor's
biggest, joining a roster of investments that includes PepsiCo Inc.
and Wendy's Co. While BNY Mellon isn't quite a household name, it
operates an important role on Wall Street.
BNY Mellon is known as a custody bank and safeguards some $27.9
trillion in assets for money managers, companies and other clients.
It is also an investment manager, with $1.6 trillion of assets
under management. As a custodian, the bank performs administrative
functions on behalf of other banks and corporations.
The nation's largest banks are rarely targeted by activist
investors, who take stakes in public companies and push for changes
such as selling divisions or returning more capital to
shareholders. Banks face strict regulation on making such
decisions, which some activist investors say could complicate
efforts to drive change from the outside.
Trian has been among the few activists to target banks. The firm
sold its State Street stake after the bank's shares rose sharply
amid a cost-cutting effort. Trian also holds a stake in investment
bank Lazard Ltd. and said last year that it supported the bank's
strategic plans.
Trian had a small stake in BNY Mellon as of the end of March but
was able to keep it confidential until a Monday regulatory filing.
Large investors are typically required to disclose holdings as of
the end of each quarter but can request to keep some secret,
allowing them to continue accumulating shares. Trian got such
treatment for its BNY Mellon investment at the end of the first
quarter.
BNY Mellon already has made significant changes this year. It
recently sold its corporate headquarters building for $585 million,
and in May said that it was exploring the possibility of selling
its corporate trust unit.
That same month, it agreed to sell its stake in Hong Kong-based
Wing Hang Bank Ltd., a move that is expected to result in a gain of
about $500 million. The bank is also selling its 49% stake in BNY
Mellon Western Fund Management Co., its joint venture
fund-management company in China, a person familiar with the
situation has said.
BNY Mellon's moves haven't been in response to any specific
shareholder push, according to a person familiar with the
matter.
As low interest rates continue to pressure bank earnings, BNY
Mellon has been focused on cutting expenses. In the first quarter,
BNY Mellon reported noninterest expenses that were down both from
the year earlier and the prior quarter, helping the bank log a
profit that beat Wall Street estimates.
Over the past 12 months, its shares have gained 34%, outpacing
both the S&P 500, up 22%, and the KBW Bank Index, up 16%, a
collection of banking industry stocks. On Monday, the shares closed
up 3.5%, to $37.48. The bank has a market capitalization of about
$42.7 billion.
Sandler O'Neill analyst Jeffery Harte said BNY Mellon's progress
on widening its pretax profit margins has lagged behind that of
rivals State Street and Northern Trust Corp., and investors are
looking for the bank to intensify its efforts to cut costs.
At its annual meeting in April, Chief Executive Gerald Hassell
said the bank is consolidating space and its technology platforms.
BNY Mellon is also eliminating duplication in its client coverage
team and bringing application development in-house to cut costs.
Since Mr. Hassell became the bank's CEO in August 2011, the
company's shares have jumped more than 80%.
Still, some, like CLSA analyst Mike Mayo, think the bank could
be doing more.
"Despite actions taken by management, our bias is to see more
aggressive actions and targets away from the status quo," Mr. Mayo
wrote in April following the bank's annual meeting.
He has been calling for a restructuring of BNY Mellon since
February, saying the bank is underperforming its peers on margins
and costs. Mr. Mayo at the time suggested separating the bank's
asset-management arm and getting out of fixed-income trading.
At the April shareholder meeting, Mr. Hassell said the bank has
examined a possible spinoff or separation and found it wouldn't
create additional value for shareholders.
Write to David Benoit at david.benoit@wsj.com
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