(Updates shares in fifth paragraph and severance package in 11th.)
Sept. 1 (Bloomberg) -- Bank of New York Mellon Corp., beset by legal challenges and an underperforming stock, said Chairman and Chief Executive Officer Robert P. Kelly left after a dispute with directors over the way he ran the company.
Kelly, 57, who had led the world’s biggest custody bank since 2007, left by “mutual agreement” with the board, the company said yesterday in a statement. His successor is Gerald L. Hassell, 59, who has been president of New York-based BNY Mellon since 1998.
The company’s stock has tumbled 33 percent this year and trades at about the same level as in early 1997. Like other custody banks, it’s struggled with low interest rates, which squeeze profits on lending cash and securities, and running money-market funds. BNY Mellon has been sued for allegedly overcharging pension funds on foreign-exchange trades and has been accused by New York’s attorney general of violating state law in its role representing investors in mortgage securities.
“The stock price is the ultimate measure of a CEO’s job, and the stock hasn’t done well,” Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, said in a telephone interview. Cassidy, who rates the stock “outperform,” said Boston-based State Street Corp., whose stock is down 23 percent this year, has done a better job winning new business than BNY Mellon.
Kelly’s departure, which surprised analysts, was announced yesterday after the close of regular U.S. trading. BNY Mellon fell 34 cents, or 1.6 percent, to $20.33 at 9:58 a.m. in New York Stock Exchange trading.
Directors Said Alienated
Jeep Bryant, a company spokesman, declined to comment beyond the statement, which didn’t elaborate on the differences between Kelly and the board. BNY Mellon’s outside directors include Wesley W. von Schack, chairman of Aegis Ltd; Michael Kowalski, CEO of New York-based Tiffany & Co.; John Surma Jr., head of Pittsburgh-based U.S. Steel Corp.; and Edmund Kelly, chairman of Boston-based Liberty Mutual Holdings Co.
The board believed the CEO alienated some directors and top executives by blaming some company problems on other members of senior management, the Wall Street Journal reported, citing people familiar with the matter. Kelly also was viewed by some as having become difficult to work with, and the board feared losing highly valued employees, the newspaper said.
Kelly was one of at least five industry executives who rebuffed overtures in 2009 from Bank of America Corp. to replace Kenneth D. Lewis as CEO at the largest U.S. lender. Kelly, the leading outside candidate, dropped out on Dec. 14 that year after the board offered a $20 million compensation package, a person familiar with the matter said at the time. The Charlotte, North Carolina-based company named an insider, Brian T. Moynihan, as its leader.
Kelly earned $19.4 million last year, a 38 percent increase from 2009, boosted by stock awards and incentive pay, according to a regulatory filing. He became head of BNY Mellon after the bank bought Pittsburgh-based rival Mellon Financial Corp. in July 2007, vaulting the company past JPMorgan Chase & Co. as the largest custody bank. Kelly previously had led Mellon, which recruited him from Wachovia Corp. in 2006.
Under his tenure BNY Mellon expanded through acquisitions, buying PNC Financial Service Group Inc.’s investment-servicing business for $2.31 billion and Germany’s BHF Asset Servicing GmbH for 253 million euros ($363 million) in 2010.
According to a March 11 regulatory filing, Kelly was entitled to as much as $36.6 million in severance payments based on a Dec. 31 stock price of $30.20. The stock closed yesterday at $20.67.
“I said two weeks ago Bob Kelly should be fired and I gave several reasons for it,” Richard Bove, an analyst with Rochdale Securities LLC in Lutz, Florida, said in a telephone interview. Kelly was “too conservative” in setting prices for the bank’s products and using the balance sheet to make money, Bove said.
Hassell joined Bank of New York as a management trainee in 1973 and has been on the board of directors since 1998. He’s held leadership positions in investment services, corporate banking, credit, strategic planning and administrative services. Hassell has a bachelor’s degree from Duke University and a master’s of business administration from New York University’s Stern School of Business.
“Gerald is ideally positioned to guide BNY Mellon through the next phase of its growth and to bring it to its full potential,” von Schack, lead director of BNY Mellon, said in the statement.
Custody banks keep records, track performance and lend securities for institutional investors including mutual funds, pension funds and hedge funds. State Street and BNY Mellon also manage investments for individuals and institutions. BNY Mellon, founded by former Treasury Secretary Alexander Hamilton in 1784, sold its retail bank branches to JPMorgan in 2006.
BNY Mellon reported a 12 percent increase in second-quarter earnings as acquisitions and market gains lifted assets and the fees from overseeing them. The bank had assets under custody of $26.3 trillion and assets under management of $1.3 trillion at the end of June.
BNY Mellon bank said Aug. 10 it planned to cut 1,500 jobs, or 3 percent of its 48,900 employees. Kelly said that “expenses have been growing unsustainably faster” than revenue.
On a July conference call, he had said the bank would trim costs by moving people to cheaper locations, consolidating real estate holdings and cutting its procurement budget. The bank has moved jobs in the past few years to Pittsburgh, Manchester in the United Kingdom and the Indian cities of Pune and Chennai to take advantage of lower costs.
N.Y. Attorney General
New York Attorney General Eric Schneiderman last month said that BNY Mellon violated state law in its role representing investors in mortgage securities created by Bank of America’s Countrywide Financial unit.
BNY Mellon should pay penalties and restitution to investors, Schneiderman said in an Aug. 4 court filing involving Bank of America’s proposed $8.5 billion mortgage-bond settlement.
BNY Mellon, along with State Street, has been accused in lawsuits of inflating the price of some foreign-exchange transactions and acting to conceal those markups. BNY Mellon is facing lawsuits from Virginia, Florida and Pennsylvania.
The bank has denied wrongdoing in all the cases, saying customers were informed about its pricing policy and had the option of using other vendors for their trades.
On the July conference call, Kelly blamed some of the rise in expenses on escalating legal costs.
“Frankly, these are the unpleasant realities of a post- crisis environment,” he said.
--Editors: Larry Edelman, Josh Friedman
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