Executives of Bank of New York Mellon (BK) are bracing for a fresh attack from activist investor Nelson Peltz that could include demands to split up the bank by spinning off its $1.5 trillion asset management business, the Fox Business Network has learned.
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BNY Mellon executives have had discussions with Peltz since June, when it was disclosed that his hedge fund Trian Partners had accumulated a 2.5% stake in the bank, according to people with direct knowledge of the matter.
Since disclosing his $1 billion position, Peltz has remained quiet about the exact nature of his demands. But based on the private conversations that Peltz has had with bank executives, he may call for spinning off BNY Mellon’s asset management business, and demand a large stock buyback to boost shares. These executives believe the activist investor may make his demands public in the coming weeks.
A spokesman for BNY Mellon declined to comment, as did a spokeswoman for Peltz, but neither would deny that talks between the two sides have taken place, and that a possible spin-off of the asset management unit was discussed.
Still, any move against BNY Mellon would be risky for Peltz, who has focused his activism on companies like Wendy’s, PepsiCo and H.J Heinz, rather than heavily regulated financial firms. In fact, financial firms have been largely ignored by activist investors like Carl Icahn and Dan Loeb since the financial crisis of 2008 ushered in massive government oversight.
On Tuesday, BNY Mellon will hold an investor day, where it is expected that Chief Executive Gerald Hassell will defend the firm’s current business model. With $23 trillion under custody, BNY Mellon is the financial industry’s largest “custodian bank,” where it safeguards and keeps records for large institutional investors. But it is also ranked as the seventh largest asset management outfit behind more well-known ones such as Blackrock and JP Morgan.
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Shares of BNY Mellon are up 16% over the past year, compared to a 13% rise in the Standard & Poor’s 500 index of large company stocks. But many investors like Peltz believe the company’s shares are undervalued, and that management should take more significant steps to juice its stock price.
Splitting two distinct businesses may be the recipe for success, Peltz has said during conversations with bank executives, setting the stage for a possible messy showdown, since management has so far resisted any attempt to break up the bank.
“They will probably show us tomorrow how keeping the two businesses under the same roof makes sense,” said analyst Gerard Cassidy of RBC Capital Markets. “They have argued that there are real cross selling opportunities between the two.”
Peltz has also stated in his conversations with BNY Mellon executives that the bank should aggressively cut costs, which the company has done, including moving to smaller offices, shedding smaller business units and through layoffs.
But what has management concerned is Peltz making a more direct assault on the bank’s business model, something he has attempted in the past. Peltz tried and failed to force another financial firm, State Street, to spin off its investment management business, and sold out of his position last year.