BNY Mellon Pushes Out CEO Kelly

The company has suffered a decline in stock price of some 32% in 2011, as well as becoming the target of a lawsuit over allegations of overcharging pension funds on foreign exchange trades, and an accusation by the New York Attorney General that it violated state law in representing investors concerning mortgage securities.

On Aug. 10, the bank had announced plans to cut 1,500 jobs—3% of its workforce; Kelly said around that time that “expenses have been growing unsustainably faster” than revenue and in a July conference call had spoken of cost-cutting measures that included personnel transfer to cheaper locations, cutting its procurement budget, and consolidating real estate positions.

The announcement, made after the close of business, was completely unexpected by analysts. A Reuters report quoted Gerard Cassidy, analyst at RBC Capital Markets, saying, “This is an extreme surprise. The company is currently facing two major issues, the planned downsizing and the ongoing foreign exchange litigation. We don’t know how or if his departure was related to them.”

Richard Bove, an analyst with Rochdale Securities LLC in Lutz, Florida, was quoted by Bloomberg saying, “I said two weeks ago Bob Kelly should be fired and I gave several reasons for it.” He added that Kelly was “too conservative” in setting prices for the bank’s products and using the balance sheet to make money.

Alexander Blostein, a research analyst covering Bank of New York Mellon for Goldman Sachs, was reported by The Times to say, “The announcement of Mr. Kelly’s resignation and its timing were unexpected, which introduces new uncertainty to the stock, in our view. While the exact reasons behind Mr. Kelly’s departure are unclear, we believe the firm’s focus under the new leadership could shift to more aggressive cost management and business rationalization and away from acquisitions.”