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BNY Mellon shareholders vote against splitting CEO and chairman jobs

| Thursday, April 10, 2014, 12:01 a.m.

Bank of New York Mellon Corp. is facing increasing discontent from shareholders who worry about Chairman and CEO Gerald Hassell's dual executive roles and how the company has managed expenses and growth.

Hassell beat back an attempt by shareholders at the company's annual meeting on Tuesday to strip him of his dual titles. But he couldn't avoid questions and criticism about the company's performance and business strategy.

In recent weeks, the bank has come under fire for lagging behind competitors in attracting retail investors to investment products such as the Dreyfus Funds. Some shareholders and analysts want the company to sell its asset management business and do more to reduce expenses.

Analyst Mike Mayo, who represented Calyon Securities Inc., peppered Hassell with questions, saying that BNY Mellon's expenses are still too high “seven years after the merger” of the Bank of New York and Mellon Financial Corp.

“Why isn't the profit margin 20 percent higher?” Mayo asked. “The merger was predicated on higher returns. ... Costs are one of the biggest concerns.“

Mayo asked Hassell whether the bank has too many employees, why management hasn't taken more aggressive action to cut expenses, about his personal use of corporate aircraft and why it hasn't appointed new members to the board of directors since the merger.

BNY Mellon had embarked on a plan in 2011 to cut $700 million in expenses over three years by closing some wealth-management offices, operating improvements such as consolidating computer applications, centralizing purchasing and bringing software development in-house, but without significant job cuts. In November, it said achieved its goal a year ahead of schedule.

BNY Mellon, the world's eighth-largest asset manager, handles about $1.6 trillion in investments for institutions and wealthy individuals. It provides bookkeeping and other administrative services for $27.6 trillion-worth of investments, making it the world's largest custody bank.

Mayo suggested that the company should sell its asset management business to generate cash for the company and return value to shareholders. He recommended that the board conduct an independent review of a sale of all or part of the unit.

“Why wouldn't the sale of asset management be of benefit to the firm,” Mayo asked in one exchange. “It seems like there's a lot of trapped value in BNY Mellon.”

Hassell responded, “We don't see a benefit at this point in time of a spinoff or separation of investment management. We've done the numbers, and we said several times if it made sense, we'd look at it.”

But the bank has sold or shut down some units that didn't perform, Hassell said, telling shareholder Vic Cunningham that some units in Japan and Mexico were sold.

Hassell called BNY Mellon the “investments company for the world,” because of strong positions in both managing investments for clients and in holding assets in its custody business.

But he was less buoyant about how the bank did in 2013, saying it “was a pretty good year despite facing some ongoing, sizeable challenges that are unique to us.” Those included rebates of money market fees to keep clients and weakness in corporate trust, which handles debt for companies. Together, those problems cut profit margins by about 2.6 percent, “quite a sizable headwind to overcome,” Hassell said.

The bank also had lower net income in 2013 of $2 billion, or $1.74 a share, down from $2.4 billion, or $2.03 a share, in 2012.

Last week, Reuters reported that BNY Mellon's investment management chief Curtis Arledge is on the hot seat because of weakness in the retail part of its asset management business. The company is looking to attract more retail investors to its Dreyfus mutual funds unit. It ranks 37th by assets in the United States among mutual fund families, with $290 billion, down from 25th in 2005 and 34th in 2010, according to Morningstar.

Arledge said BNY Mellon is only in the early stages of a strategy to attract retail investors but expects tangible progress by this summer, Reuters said. The bank paid Arledge $12.26 million in 2013, compared to Hassell's $9.45 million, according to a securities filing.

Darryl Taylor, a representative of AFL-CIO and the Utility Workers of America, spoke in favor of the shareholder resolution to split the jobs of CEO and chairman. The bank had recommended against the proposal, saying it would not be in the best interest of our stockholders.

The idea has been promoted by shareholder advocates as a way to improve corporate governance. In recent months, corporations such as U.S. Steel Corp. and Walt Disney Co. have separated the jobs.

“How can the CEO be his own boss?” Taylor asked, saying the combined job, how held by Hassell, is not enough protection for shareholders. He noted that First Energy Corp. recently appointed an independent chairman, and said BNY Mellon “should do the same thing, so our CEO can focus on improving returns for the shareholders.”

Shareholders voted against the proposal, with 78.3 percent voting no.

John D. Oravecz is a staff writer for Trib Total Media.

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