Share price of The Bank of New York Mellon Corp. BK ended 1.5% lower at the end of yesterday’s trading session after a San Francisco-based investment manager Marcato Capital Management challenged BNY Mellon’s leadership. Marcato, which holds a 1.6% stake in the bank, called for a change in management beginning with the exit of Chief Executive Officer (CEO) Gerald Hassell to initiate a growth turnaround.
Highlights of the Presentation
Marcato, one of the leading investors in BNY Mellon, released a letter as well as presentation emphasizing on the need for a new management to help the bank realize its potential. According to Mick McGuire, the managing partner and founder of Marcato, the bank has been underperforming and needs to undertake measures to improve efficiency.
In the presentation, Marcato summarized BNY Mellon’s failure to deliver long-term growth assured on previous investor days. Moreover, the presentation stated that the bank’s performance has weakened over the years compared to another custodian bank State Street Corp. STT. Also, the bank returned less capital to its shareholders compared with State Street.
Moreover, BNY Mellon’s key revenue drivers have decelerated under the current management. Also, Marcato raised doubts over management’s guidance about the future development and expense saving initiatives by comparing it with another major custodian bank JPMorgan Chase & Co.’s JPM performance and outlook provided on 2015 investor day.
Crux of the Matter
Marcato, based on its analysis, stated that it believes BNY Mellon failed to generate value in the low interest rate and volatile environment. The bank has not been successful in meeting its long-term growth targets, which has resulted in lagging performance compared to peers.
From a long-term perspective, the bank needs fresh supervision and guidance, innovative ideas, repositioning of asset management, cutback in headcount and brand stimulation. Through these reforms, the bank will be able to tackle margin compression driven by a prolonged low rate environment and growing mix of excess deposits.
Our Take
Though BNY Mellon claimed that the CEO has augmented shareholder value, lowered costs and improved profit margins, the detailed analysis against the bank by a major investor will likely influence other shareholders.
Currently, BNY Mellon carries a Zacks Rank #3 (Hold). A better-ranked bank in the same space includes Northern Trust Corp. NTRS, which holds a Zacks Rank #2 (Buy).
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