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Layoffs hit BNY Mellon; sale of trust business mulled

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Tuesday, May 20, 2014, 2:18 p.m.
 

Bank of New York Mellon is laying off staff and considering whether to sell its corporate trust arm, which includes 135 employees in Pittsburgh, as it faces pressure to control expenses and retreat from a business that has become less profitable since the financial crisis, bank officials disclosed on Tuesday.

In a presentation to analysts, BNY Mellon's chief financial officer, Todd Gibbons, said the bank would be taking a charge of $80 million to $100 million this quarter because of severance costs from layoffs.

Bank officials, however, declined to say how many people would be affected or in which departments.

“We're taking actions to ensure that our staffing levels are sized appropriately,” said spokesman Ron Gruendl, adding that the cuts would be achieved through attrition, layoffs and reviewing proposed hires.

BNY Mellon employs 7,600 people in the Pittsburgh region.

Meanwhile, BNY Mellon is exploring whether the corporate trust business is worth more to other institutions and, if so, could pursue a sale. The unit has become significantly less profitable in recent years, generating $542 million in pretax income in 2013 compared with $897 million in 2009. The decline in profitability is because of waived fees, lower earnings from loans and deposits, and higher capital requirements, the bank said.

BNY Mellon has come under fire for lagging behind competitors in attracting retail investors to investment products. During last month's annual meeting, Chairman and CEO Gerald Hassell faced criticism of how the company has managed expenses and growth. Some shareholders want the company to sell its asset management business and do more to cut costs.

The bank is facing fierce price competition for the services it offers, which is why neither the layoffs nor the potential sale of the corporate trust unit are surprising, said Dick Bove, an analyst with Rafferty Capital Markets.

Bove said the corporate trust business could bounce back in a few years, but the immediate need to lower expenses is forcing the bank to make difficult decisions.

“They are continuing to push on lowering the cost of their operations because they have to,” Bove said. “The reason why they have to is because the price of services they sell keeps coming down. ... You're constantly driving your operating costs lower, and the way you do that is by substituting technology for people.”

Gruendl would not say whether potential buyers for the corporate trust unit had stepped forward. BNY Mellon expects to make a decision by the third quarter of this year. The sale and any subsequent use of the proceeds would need to be cleared by regulators.

Rumors over the potential sale have been circulating for weeks. In late April, Bloomberg News reported that BNY Mellon was working with Goldman Sachs Group Inc. to find buyers for the unit, which could fetch at least $2.5 billion.

The corporate trust arm helps companies, such as United Technologies Corp. and Volkswagen Financial Services, process payments on debt they issue and helps investors recover their money if companies default. It has 2,500 employees at 60 offices around the world.

The unit could appeal to large banks that are already involved in corporate trust, such as Citibank and Wells Fargo & Co., said Erin Davis, a senior analyst at Morningstar.

“I do think it's a business that benefits from scale,” she said.

Bove doubted whether U.S. banks would be interested, because he didn't believe “the United States government would allow it under this too big to fail thesis.”

“I think the Royal Bank of Canada would be a type of bank that would be most likely to buy it,” he said. “The Canadian banks are very acquisitive. They have the money to make acquisitions, and they need to enter new businesses which are not totally associated with lending on houses. I think, by far, they are at the top of the list.”

A Wells Fargo spokeswoman said the bank “never comments on speculation or rumors, and so we would not have anything to say about that.” Spokespersons for Royal Bank of Canada and Citibank did not immediately return calls for comment.

Last month, BNY Mellon reported 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.

Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or cfleisher@tribweb.com.

 

 
 


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