The Bank of New York Mellon Corporation
) is in the process of restructuring its operations. At the UBS
Global Financial Services Conference 2014, the company confirmed
the plan to divest its corporate trust business. Further, BNY
Mellon plans to lay off workers across the board, which would lead
to severance charge in the current quarter.
BNY Mellon's plan to sell its corporate trust business was first
reported by Bloomberg in April. The business unit, which is part of
the company's Investment Services segment, has become less
profitable due to increased fee waivers and higher capital
Though the price at which BNY Mellon plans to sell its corporate
trust business was not disclosed, the chief executive officer
Gerald Hassell stated that it would be much higher than the market
rumor. The media reports valued the business at approximately $2.5
Moreover, the chief financial officer (CFO), Todd Gibbons commented
that the procedure for exploration of the potential sale of
corporate trust business is expected to be completed by September.
BNY Mellon has hired
The Goldman Sachs Group, Inc.
) as financial advisor to assist in the sale process.
BNY Mellon's corporate trust business which employs roughly 3,500
in 61 offices globally offers a wide range of administrative
services including payment processing and collection of debt. The
unit could attract offers from financial institutions such as
Bank of America Corp.
), U.S. Bancorp,
Wells Fargo & Co.
) and The PNC Financial Services Group Inc., as these companies try
to expand their operations or foray into new business.
Though the corporate trust business' performance has lacked luster
for quite some time, BNY Mellon believes that the unit has
significant growth potential over the longer term. However, the
company's lower profitability and continued rise in expenses due to
higher capital requirement and slow economic recovery have forced
it to put the business up for sale.
Separately, BNY Mellon also stated that severance charge of
$80-$100 million will be incurred in the second quarter as it
retrenches employees and simplifies its processes. Though no
details were provided by the company pertaining to the actions
being undertaken, the CFO commented that this would eventually lead
to $100 million of cost savings annually. Further, nearly $50
million will be saved this year itself.
We believe that BNY Mellon's restructuring initiatives are intended
at bottom-line growth going forward. The company had also
undertaken cost saving initiatives earlier that bore fruit.
Nevertheless, sluggish economic growth, a still low interest rate
environment and stringent regulatory requirements make us
apprehensive about the company's near-term performance.
Currently, BNY Mellon carries a Zacks Rank #3 (Hold).
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