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April 6, 2014 10:11 pm
Shareholders in Bank of New York Mellon, the world’s largest custody bank, are voicing concern about expenses and executive pay ahead of its annual meeting on Tuesday.
Two top-30 shareholders said they were disillusioned by a failure to keep expenses under control and meet targets on profitability since the company was formed in 2007 from the merger of Bank of New York – the oldest bank in the US created by one of America’s founding fathers, Alexander Hamilton – and Mellon Financial, an asset management firm.
Gerald Hassell, who replaced Bob Kelly as chief executive after a boardroom clash in 2011, has a target of 10 per cent return on equity. But the bank has failed to meet its targets, and trailed rivals, such as State Street, in profitability, with margins several percentage points lower and persistently higher costs.
“It has become of increasing concern to us,” said one large shareholder. “We’ve noticed it and it has continued and it is in contradiction to the objectives and plans by the CEO when he took over.
“They are underperforming their close peers on cost and a larger set of financial peers. State Street has done much better on expenses.”
Mike Mayo, an analyst at CLSA who has suggested the bank should be split up, added: “This is not a close call. In the case of BNY and their need to better optimise operations shareholders are almost unanimous.”
Mr Mayo said he planned to attend Tuesday’s meeting, the first of the banks to hold this year’s shareholder gatherings, and try to persuade the board to conduct a study into the costs and benefits of selling its asset management division.
He noted that a combination of State Street and BlackRock, the asset management group, would be about the same size as BNY Mellon but with twice the profits and 20 per cent fewer employees.
One investor also expressed displeasure that Mr Hassell had been awarded nearly his full bonus payout in spite of lacklustre results. The chief executive earns about $13m a year.
However, last year BNY Mellon recorded 97 per cent of the shareholder vote in support of the executive pay plan, up from 59 per cent a year earlier.
Despite the investor dissatisfaction, there is not expected to be any large-scale rebellion, though Calpers, the large California pension fund, said it planned to vote in favour of efforts to force the bank to appoint an independent chairman.
BNY Mellon said its total shareholder return of 39 per cent last year outperformed its peers, while “pre-tax income and core investment management and investment services fees grew nicely and our capital position has remained very strong”.
It added: “We are committed to continuing this strong performance as we capitalise on investments we’ve made for the future, focus on expense control and operating leverage [increasing revenues faster than costs], and increase shareholder returns.”
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