Bloomberg News

BNY Mellon Said to Explore Sale of Corporate Trust Division

April 23, 2014

Gerald Hassell

Gerald Hassell, chief executive officer of BNY Mellon NA., is selling assets and cutting costs to boost profitability. Photographer: Andrew Harrer/Bloomberg

Bank of New York Mellon Corp. (BK:US) is exploring the sale of its corporate trust arm as it seeks to retreat from a business that has become less profitable since the financial crisis, people with knowledge of the matter said.

BNY Mellon, the world’s largest custody bank, is working with Goldman Sachs Group Inc. (GS:US) to find buyers for the unit, which could fetch at least $2.5 billion, said one of the people, asking not to be identified because the matter isn’t public. The company has begun contacting potential buyers and is expected to begin soliciting offers in about a month, the people said.

The corporate trust arm helps companies such as United Technologies Corp. and Volkswagen Financial Services Inc. process payments on debt they issue, and helps investors recover their money if companies default. With 3,500 employees at 61 offices around the world, the unit services about $12 trillion in outstanding debt for its clients, according to BNY Mellon’s website.

The unit could appeal to large commercial banks that are already involved in corporate trust or interested in expanding into the market, such as Bank of America Corp. (BAC:US), U.S. Bancorp, Wells Fargo & Co., and PNC Financial Services Group, said Marty Mosby, an analyst with Guggenheim Securities LLC.

“It is a very stable business, there is not a lot of real risk to it,” he said.

Bundling Loans

BNY Mellon rose almost 2 percent (BK:US) to $34.21 at the close in New York. The shares have gained 24 percent in the past year, giving the company a market value of $38.8 billion.

The business helping companies and investors who bundle corporate and mortgage debt has become less lucrative after the credit crisis made it more difficult to package and sell the loans. Chief Executive Officer Gerald Hassell is selling assets and cutting costs to boost profitability.

“I don’t think you can call it a plus when you sell a business you once thought you could make money in,” said Richard Bove, an analyst with Rafferty Capital Markets LLC. Bove has a buy recommendation on the stock because BNY Mellon will benefit when short-term interest rates eventually rise.

Kevin Heine, a spokesman for BNY Mellon, and Andrew Williams, a spokesman for Goldman Sachs, declined to comment.

Issuer service fees, including the corporate trust business, fell 3 percent in the first quarter, to $229 million, as pools of loans managed by its corporate trust arm matured and weren’t replaced, the bank reported this week.

Run-Off

BNY Mellon estimates that run-off in the unit will reduce annual revenue by $50 million to $75 million, or about 0.5 percent of total revenue, Thomas P. Gibbons, the bank’s vice chairman and chief financial officer, said on a conference call yesterday, according to a transcript of the call.

The New York-based bank earned $661 million in the first quarter, compared with a loss of $266 million a year earlier that was caused by a tax court decision, as rising stock markets lifted assets and fees for overseeing them.

The bank sold its Mexican operations to CIBanco SA last year, and plans to sell its Wall Street tower as it scales down its office space.

To contact the reporter on this story: Matthew Monks in New York at mmonks1@bloomberg.net

To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net Elizabeth Wollman


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Companies Mentioned

  • BK
    (Bank of New York Mellon Corp/The)
    • $40.17 USD
    • 0.26
    • 0.63%
  • GS
    (Goldman Sachs Group Inc/The)
    • $183.93 USD
    • -0.05
    • -0.03%
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