BNY Mellon to Sell Corporate Trust Biz - Analyst Blog
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 requirements.
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 billion.
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. ( GS ) 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. ( BAC ), U.S. Bancorp, Wells Fargo & Co. ( WFC ) 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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