Marcato Capital Management’s presentation on Bank of New York Mellon all 150 slides – Also see the rare interview with Mick McGuire where he called for the ouster of the CEO of BNY.
Full presentation below
Executive Summary
1. BNY Mellon has a good franchise in what has been a good business
2. But the world has changed…
i. Low rates and volatility pressuring revenues (permanent?)
ii. Regulatory environment imposing new capital charges and operating burdens (permanent)
3. Management has done a poor job creating value through this changing environment and offers no new ideas for facing current and future challenges
4. BNY Mellon will not reach its potential with small, incremental adjustments but requires bold action and new ideas
5. New leadership will be necessary to conceive and execute the strategies necessary to compete in this new world
New Leadership Will Have Numerous Opportunities For Improvement:
1. Reconsider Value Proposition to Core Investment Servicing Customers
2. Raise IT Effectiveness to Top Company Priority
3. Reduce Headcount Aggressively
4. Reposition Asset Management
5. Establish Culture of Effectiveness, Urgency, and Accountability
6. Upgrade Regulatory Sophistication and Outreach
7. Refresh the Bank of New York Brand
Successful execution against this plan will produce a more powerful franchise with higher growth, a more efficient expense base, higher returns on capital, and a market value that is more than double the current price
Marcato Capital Management: Good Franchise In A Historically Good Business
- BK is a leading global custodian and operates in an industry dominated by three major global custodians (BNY Mellon, State Street, JPMorgan)
- Large client base drives high transaction volumes and economies of scale
Economies of Scale
- Large providers can leverage economies of scale to deliver custody services at significantly lower costs than small competitors
- Custody involves large fixed costs to build out each processing service for the first customer of that service
High Switching Costs / Sticky Client Relationships
- Preference to centralize back office with a single custody bank provider to maintain centralized oversight of operations
- Customers build their back-office infrastructure around the custodian
- Significant time and resources required to establish a custodial service relationship (3 month on-boarding process)
- Low customer attrition with average asset servicing relationships greater than a decade
- Legally enforceable multiyear service contracts
- Mission critical services at a small price in relation to the assets of its clients (.01% of assets)
Attractive Fee-Based Business Model
- BK primarily generates revenue from fees rather than net interest margin
- Counter-cyclical elements in fee revenue mitigate the impact of severe market downturns and provide earnings stability
See full presentation below.
