Bank of New York Mellon delivered unexpected news after the markets closed Wednesday, announcing that Chairman and CEO Robert Kelly has departed, and has been replaced by Gerald Hassell (below), who has been president of the company since 1998. Hassell will continue to serve as BNY Mellon’s president.
In its official statement on the change, BNY Mellon said Kelly stepped down as chairman and CEO “by mutual agreement with the board of directors, due to differences in approach to managing the company.”
No one at BNY Mellon (BK) or Pershing, which operates the largest clearing firm for independent broker-dealers and a custodial platform for RIAs, Pershing Advisor Solutions, was available for comment on how, or if, the change at the top of BNY Mellon would affect Pershing and its clients.
The announcement came as a surprise to most banking analysts, though Kelly had faced criticism from some of them. A Reuters report quoted Gerard Cassidy, an analyst at RBC Capital Markets, as 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.”
Cassidy was referring to a lawsuit the firm faces alleging it overcharged pension funds on some foreign exchange trades, and the bank’s Aug. 10 announcement that it 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 transfers to cheaper locations, cutting its procurement budget, and consolidating real estate positions.
Bloomberg quoted Richard Bove, an analyst with Rochdale Securities, as 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.
On July 19, the company slightly beat consensus expectations on its second-quarter 2011 earnings with EPS of $0.59. In its earnings report then, it said overall profits rose 11.7% from the same period a year ago to $735 million. Assets under management rose 22% in the period, with $32 billion of net flows in Q2, while assets under custody and administration rose 21%.
Clearing services revenue from BNY Mellon’s Pershing unit was $290 million in the second quarter, flat against the $290 million it reported in the first quarter but up 21% from the $240 million reported in the first quarter of 2010.
Kelly said in a prepared statement at the time that “fees and net interest revenue grew nicely over both the prior year and quarter, leading to EPS growth of 9% and 18%, respectively,” and that while “expense growth remained high due in part to legal and regulatory costs … we are taking additional actions to reduce expenses.”
In July, Barron’s Teresa Rivas argued that “BNY Mellon Deserves Better Treatment” from investors, citing its “impressive” long-term growth and that since it’s not a “classic lending and deposit” bank it is not subject to the same economic and regulatory pressures faced by other banks.
Following the announcement Kelly has been replaced, Rivas stuck to her guns in an online article Thursday. “We remain bullish on BNY Mellon and see any additional share-price dips resulting from this added uncertainty as buying opportunities,” she wrote, despite the fact that its shares “have fallen 13% since Barrons.com recommended them in July …”
A Bloomberg report on the departure mentioned talk that Kelly had placed blame for some of the company’s problems on other senior managers, which alienated some directors and top managers. According to a New York Times report, Kelly was also thought to be not as engaged in the bank’s daily operations as board members wished. It also said the blowup between Kelly and the board had been looming.
At this year’s Pershing Insite conference, Kelly spoke of the challenges of running a bank in the current environment. (See also a feature article, “Scramble for Assets,” in Research magazine’s September 2011 issue exploring the strategies of the major clearing firms.)
Alexander Blostein, a research analyst covering Bank of New York Mellon for Goldman Sachs, was reported by The New York Times as saying, “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.”
A graduate of Duke University, with an MBA from the Strern School at NYU, Hassell has been with BNY Mellon for over 30 years, exercising management responsibility for a broad range of the bank’s businesses, including asset servicing and issuer, broker-dealer, treasury and clearing services.