Peltz’s Trian Seeks Talks With BNY Mellon on Activist Stake

Jun 30, 2014 4:53 pm ET

(Updates with analyst’s comment in sixth paragraph.)

June 30 (Bloomberg) -- Trian Fund Management LP, the activist investment firm co-founded by Nelson Peltz, is seeking talks with Bank of New York Mellon Corp. after revealing a 2.5 percent stake in the world’s largest custody bank.

Trian has amassed 28.9 million shares of BNY Mellon valued at about $1.05 billion as of June 27, according to an e-mailed statement today from the New York-based hedge-fund manager. A regulatory filing disclosed the firm bought 9.33 million shares of the custody bank in the first quarter, a new position. Trian sought permission from the U.S. Securities and Exchange Commission to keep the stake confidential, which expired today, according to the filing.

“Trian has recently contacted The Bank of New York Mellon 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,” Trian said in the statement.

BNY Mellon, like other custody banks, has been under pressure to trim costs as low interest rates have cut income from its investment portfolio, held down revenue from securities lending and forced it to waive fees on money-market funds. Mike Mayo, an analyst at CLSA Ltd., said in February that the 2007 merger creating BNY Mellon has failed to deliver higher profits as the company lags behind its biggest competitors.

‘Flammable Situation’

Mayo, who called on activists to target banks including BNY Mellon in an April 23 interview with Bloomberg Television, in a note today upgraded the bank to outperform and raised his price target for the shares to $42 from $35.

“A new stake by activist investor Trian seems like a spark in a flammable situation,” Mayo wrote in the note. BNY Mellon “needs to more aggressively restructure given subpar efficiency and governance and an underoptimized franchise, including asset management.”

BNY Mellon rose 3.5 percent to $37.48 in New York, its biggest gain in seven months and highest price since 2008. The shares are up 7.3 percent this year, compared with a 1.3 percent advance for the Standard & Poor’s index of custody banks and asset managers.

“Trian is a respected investment firm,” Kevin Heine, a spokesman for New York-based BNY Mellon, said today in a telephone interview. “We look forward to engaging with them as we do all our investors.”

State Street

Peltz in October 2011 disclosed a stake in State Street Corp., criticizing the Boston-based custody bank for poor performance and urging it to adopt a plan to raise profits, including a possible sell-off of the bank’s money-management unit.

State Street, which didn’t sell its asset-management arm, cut costs and returned capital to shareholders. By the time Peltz sold his holdings in the third quarter of 2013, the shares had more than doubled.

Activist investors tend to buy at least 5 percent of a company’s stock and flag their intention to actively engage executives and directors by disclosing their holding in a 13D filing with the SEC. In addition to State Street, Peltz’s Trian has taken active stakes in companies including PepsiCo. Inc., DuPont Co., Mondelez International Inc. and Ingersoll-Rand Plc and pushed them to make changes to boost share prices.

Selling Headquarters

BNY Mellon last month agreed to sell its headquarters at 1 Wall Street in lower Manhattan to a joint venture led by Harry Macklowe’s Macklowe Properties for $585 million. The bank said it will move to lower Manhattan’s Brookfield Place as part of an effort to scale down its office space and streamline operations.

Last month, the bank said it will book $80 million to $100 million in severance costs in the quarter ending today for unspecified cuts to its workforce. BNY Mellon said the move would save $100 million on an annual basis. The bank also said it was exploring a sale of its corporate trust business, which Bloomberg News reported in April.

“I think this will put a little more pressure on management to focus on efficiencies that can fall down to the bottom line,” Marty Mosby, an analyst with Vining Sparks in Memphis, Tennessee, said in a telephone interview. “The bank has been treading water on earnings for some time.”

Custody banks keep records, track performance and lend securities for institutional investors. BNY Mellon also manages investments for individuals and institutions.