BNY Mellon outlines $650 million cost cuts

| Tuesday, Nov. 15, 2011

Bank of New York Mellon Corp. will cut at least $650 million from its cost structure by 2015, including consolidating some office locations, CEO Gerald Hassell said Monday.

During a conference call with analysts, Hassell and other executives did not identify locations that would be down-sized or closed. Other savings would come from operating improvements such as consolidating computer applications, centralizing purchasing and bringing software development in-house.

Hassell said the three-year cost-cutting plan would "reduce our expense run rate in a meaningful way."

"I'd think Pittsburgh, as a home base would come out all right," said Jeff Harte, an analyst at Sandler O'Neill & Partners, Chicago. "But it's hard to say."

After the conference call, BNY Mellon shares closed lower, at $20.55, down 96 cents, or about 4.5 percent.

"The cuts do not have the impact that most people were hoping" for, Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, said, explaining the decline in the stock price. BNY Mellon's cost-cutting moves were not as aggressive as those taken by Boston-based rival State Street Corp., he said.

Asset servicing, which involves keeping track of client investments, would absorb the largest share of the expense cuts, Chief Financial OfficerThomas Gibbons told analysts. He also said the bank would see restructuring expenses of $80 million to $100 million in the current quarter "to get the program started."

In early August, former CEO Robert Kelly announced BNY Mellon would cut about 1,500 jobs, or about 3 percent of its global work force, starting this fall to reduce rising operating costs. Kelly unexpectedly resigned at the end of August.

Hassell, who succeeded Kelly, did not indicate yesterday how many jobs would be eliminated or in what locations. But he said $650 million to $700 million in costs woud be taken out.

BNY Mellon employs 7,760 people in the Pittsburgh area out of 48,000 worldwide.

"It's not just BNY Mellon. All the trust banks are working on expense reduction," said Harte, because revenue growth is hard to generate in a down economy with low interest rates.

"Hassell strikes me as a little harder on expenses than Kelly was. But it's hard to think expenses management is what drove Kelly's departure," said Harte.

When asked by an analyst yesterday why Kelly left, Hassell said: "I'm moving on. We have a great team, and I don't have anything more to say on it."

BNY Mellon, the world's largest custody bank, also will raise fees on many institutional clients in order to meet revenue growth targets, even if it means some of them decide to leave the bank, said executives.

Gibbons said BNY Mellon should be able to increase annual revenue by 3 percent to 5 percent from 2012 to 2014, or just above peer average.

Hassell defended the bank's pricing of foreign-exchange transactions. BNY Mellon was sued last month by the New York Attorney General and the U.S. Attorney's Office in Manhattan for overcharging clients on those trades.

Hassell said that while the accusations were "unfair," he would be willing to settle the matter on "reasonable terms."

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