Activist investor Peltz targets BNY Mellon
Billionaire activist investor Nelson Peltz has set his sights on Bank of New York Mellon as the company tries to catch up with competitors and improve profitability.
Peltz's hedge fund, Trian Partners, disclosed on Monday that it has acquired 28.9 million BNY Mellon shares, or a 2.5 percent stake worth $1.05 billion. The company wrote in an email that it contacted the bank “to express its interest in discussing its ideas and initiatives to drive long-term growth and enhance shareholder value with the company's management and its board.”
Peltz has a history of investing in companies, including Pittsburgh-based H.J. Heinz Co. and PepsiCo, and aggressively pushing for change. Trian spokesman Nathan Riggs said that Peltz was unavailable for comment, and he declined to remark beyond the written statement on what ideas the hedge fund has for improving performance at BNY Mellon.
“Trian is a respected investment firm,” BNY Mellon spokesman Kevin Heine wrote in a statement. “We look forward to engaging with them as we do all our investors.”
BNY Mellon, a banker for institutional investors and the wealthy, is under fire for falling behind competitors in attracting retail investors, managing expenses and growth. Some shareholders want the company to sell its asset management business and do more to cut costs.
The bank has cut expenses by $600 million during the past three years. It has closed some wealth-management offices, laid off staff and moved to improve operations by consolidating computer applications, centralizing purchasing and bringing software development in-house.
But some shareholders and Wall Street analysts still believe the company is lagging behind its competitors, such as State Street Corp., in unlocking more value for shareholders. Peltz in recent years had targeted State Street, a Boston-based financial services company.
As he has done at State Street and other targets, Peltz is expected to push BNY Mellon management to be more aggressive in controlling expenses and potentially sell parts of the business. The company, which has 7,600 employees in Pittsburgh, is one of the biggest custody banks.
In 2011, Trian took a stake in State Street and pushed it to slash costs. Trian did not win all its demands, but its influence was credited with helping improve the company's performance. State Street's stock price rose more than 100 percent in the two years that Trian was an investor. Trian sold its stake in November.
“I think it came out pretty well,” said Marty Mosby of Vining Sparks in Memphis. “The (State Street) stock price did pretty well after he moved in and started applying some pressure.”
Analysts expect Peltz to push BNY Mellon in a similar direction.
BNY Mellon's stock price has increased 34 percent during the past year, outpacing the S&P 500. In April, the bank reported a profit of $661 million in the first quarter, or 57 cents per share.
Clearly, Peltz seems to think there is room to improve, Mosby said.
“BNY Mellon has been in this mode of earning in the 50-cent per quarter range for a while,” Mosby said. “And what I think this investor will do is step in and say, ‘I think that's unacceptable and there should be things that you're starting to look at as a management team to help move past that.' ”
Peltz likely will push harder for BNY Mellon to sell some business units, said Dick Bove of Rafferty Capital Markets. However, selling off the bank's asset management business “would be a huge mistake,” he said.
“Every major central bank in the world is printing more money. Ultimately, that money gets in the hands of the wealthy, and they have to invest it,” Bove said. “If they are going to invest it, it's going to be with some asset management group. So the net effect is we're in a period in which asset management looks like it's going to be a very, very good business for a number of years.”
BNY Mellon is exploring the sale of its corporate trust unit, which services corporate debt, and expects to make a decision by the third quarter this year. Last week, the company announced that it was moving its headquarters to smaller offices in lower Manhattan, having inked a $585 million deal to sell One Wall Street to Macklowe Properties.
Peltz is no stranger in Pittsburgh. In April 2006, Trian took a 5.4 percent stake in Heinz. The hedge fund led a proxy fight to win seats on the Pittsburgh company's board and pushed then-CEO William Johnson to increase advertising spending and introduce healthier products. Heinz management fought many of Peltz's demands, but some analysts credited him with helping Heinz sharpen its focus.
“(Heinz) management did a great job executing the turnaround, but Peltz was the catalyst for a lot of the change,” John Sini, a portfolio manager at Douglas C. Lane & Associates Inc., told Bloomberg last year.
A Heinz spokesman declined to comment.
Investors seem to think Peltz will help with BNY Mellon's turnaround. After the announcement on Monday, shares of BNY Mellon stock increased 3.42 percent to close the day at $37.48.
“Investors are envisioning that this is going to get management under the gun a little bit more to make sure they're making every incremental decision they can to create shareholder value,” Mosby said.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or cfleisher@tribweb.com.
