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Avoiding possible proxy fight, BNY Mellon gives board seat to activist investor Trian

| Tuesday, Dec. 2, 2014, 12:39 p.m.
Trian Fund Management chief investment officer and co-founder Ed Garden was given a seat on the Bank of New York Mellon board of directors in late 2014.
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Trian Fund Management chief investment officer and co-founder Ed Garden was given a seat on the Bank of New York Mellon board of directors in late 2014.

Bank of New York Mellon Corp. has agreed to give a board seat to activist investor Trian Fund Management, a concession that will give the investment company led by billionaire Nelson Peltz sway over managers' compensation as it advocates for changes to boost the bank's profitability.

The decision happens days before a deadline to nominate board directors for shareholder approval in spring. Trian, which disclosed in June that it had taken a 2.6 percent stake in BNY Mellon, usually pushes for board seats to spur change at companies it targets.

The appointment of Trian chief investment officer and co-founder Ed Garden to a seat signals that the bank would prefer to avoid a fight with one of the most aggressive activist investors on Wall Street.

“We have had valuable discussions with Ed and Trian over the past several months about our progress towards improving our financial performance and capitalizing on the expanding opportunities in the markets we serve,” bank Chairman and CEO Gerald L. Hassell said in a statement.

Garden, whose addition expands the board to 14 members, will serve on the human resources and compensation committee, and the risk committee. The positions will give him an opportunity to influence BNY Mellon strategy and push for cuts in expenses.

Trian declined to comment Tuesday. In a statement, Garden said he believes BNY Mellon has “great potential.”

“At its recent investor meeting, BNY Mellon set a number of financial goals to be achieved from 2015 through 2017,” Garden said, “and I look forward to working closely and constructively with Gerald and the board to execute on these goals.”

Garden can use his input on compensation to hold managers accountable for the company's business strategy and performance. He can use his leverage over compensation, for example, to force the bank to cut jobs, said Marty Mosby, an analyst with Vining Sparks.

“To really make a change in the needle, you're going to have to look at places where you can reallocate resources,” Mosby said. “Sometimes it takes an outside force to make sure you're making those kind of decisions.”

BNY Mellon employs 50,900 people in 35 countries, including 7,600 in Pittsburgh. It has laid off staff and sold less-profitable portions of its business amid pressure from Wall Street and some shareholders to cut costs.

Garden is the third new board member at BNY Mellon this year. He will join the slate of candidates up for election at the annual shareholder meeting in 2015.

In offering the seat, BNY Mellon appears to be extending an olive branch to Trian to avoid a proxy fight, in which activists try to persuade shareholders to use their proxy votes to make management changes.

“I don't think Bank of New York is really pushing against Trian,” said Paul Gulberg, an analyst at Portales Partners.

BNY Mellon, a banker for institutional investors and the wealthy, is the world's largest custody bank and safeguards $28.3 trillion in assets.

Trian stayed quiet since disclosing it acquired 28.9 million shares in BNY Mellon worth roughly $1.16 billion. The hedge fund has a history of investing in companies, including Pittsburgh-based H.J. Heinz Co. and PepsiCo, and then pushing for change.

Peltz pushed BNY Mellon competitor State Street Bank to spin off its asset management business after he invested in that bank in 2011. State Street's board fought the proposal and won. Some have wondered whether Peltz would push BNY Mellon to do the same.

Trian may have little room for cuts at BNY Mellon. The bank laid off staff and sold assets, including its headquarters at 1 Wall St. in lower Manhattan for $585 million this year. In October, Hassell told investors that he plans to cut $500 million in expenses by 2017.

BNY Mellon's stock rose 20 percent in the past year, outpacing the S&P 500. It was up nearly 2 percent, or 70 cents at $40.28 Tuesday. But like all banks, BNY Mellon has struggled to improve its bottom line because of low interest rates. Its net interest margin, a measure of lending profitability, fell to 0.94 percent in the third quarter from 1.16 percent a year ago.

Hassell has said the bank will invest in technology and trim operations to make itself more efficient. It is aiming for 7 to 9 percent growth in operating earnings per share by 2017, assuming interest rates stay low. Higher rates would mean faster growth of 12 to 15 percent.

Instead of advocating for further cuts, Trian may be content to hold the bank accountable for initiatives under way and wait for rising interest rates to boost profitability, Gulberg said.

“There's little that they can do in terms of expenses,” Gulberg said. “So most likely, Peltz and Trian are trying to get them honest, in terms of their goals and targets.”

Chris Fleisher is a Trib Total Media staff writer. Reach him at 412-320-7854 or cfleisher@tribweb.com.

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