Bank of New York Mellon Corp. should separate its money management and securities servicing business, Mike Mayo, banking analyst at CLSA, said Tuesday in a note to clients, titled “Restructure This Bank?,” adding that the 2007 merger of Bank of New York and Mellon Financial “failed to produce desired scale benefits given underperformance in efficiency, earnings and the stock price.”
In rating BNY Mellon's stock as “underperform,” Mr. Mayo, who is based in New York suggested that BNY Mellon also consider “getting rid of the bank's 'hobbies,'” saying fixed-income trading excluding foreign exchange, private equity, seed capital and equity investments “likely cost more in regulatory capital, oversight, management distraction and investor scrutiny than they are worth.”
Although Mr. Mayo said the 2008-2009 financial crisis was one reason BNY Mellon fell short of its targets, comparisons of its custody business vs. its peers, which faced the same headwinds, “do not stand out,” with its growth rates and assets under custody essentially the same as those of State Street Corp. and Northern Trust Corp. “The key point is that there is no evidence Bank of New York has grown faster than peers as a result of the merger with Mellon, and arguably, the servicing business has grown more slowly than peers.”
“We believe the issue with BNY Mellon is that the end result has not panned out as well as peers, or would have been expected for a company that says it achieved synergies from its 2007 merger,” Mr. Mayo wrote. “This starts with the stock price, but includes efficiency and lack of a complete connection from pay to performance. For BNY Mellon, as with other companies that have expanded over the years via acquisitions, if results do not pan out as desired by shareholders, then it seems reasonable to ask 'where is Plan B?'”
