Bank of New York Mellon Corp. (BK)’s shares fell in New York trading after the world’s largest custody bank said it would book a charge of as much as $100 million this quarter for cost-cutting measures.
BNY Mellon plans to save as much as $700 million before taxes by 2015 through operational improvements such as consolidating applications, insourcing software development and combining locations, the New York-based bank said today in an investor presentation.
BNY Mellon is cutting expenses as lawsuits over the pricing of foreign-exchange transactions are pushing up legal costs and interest rates near zero erode revenue. Chief Executive Officer Gerald Hassell, who took over in September after Robert P. Kelly left in a dispute with the board of directors, said the market environment will be challenging for an extended period.
“We believe we are going to face slow growth and difficult markets, so we have to go after the expense base,” Hassell said during the presentation.
The bank said it expected its fee revenue to grow 3 percent to 5 percent per year from 2012 to 2014, outpacing a projected 2 percent to 3 percent annual increase in expenses.
BNY Mellon shares fell 4.5 percent to close at $20.55 in New York trading. The stock has declined 32 percent this year.
“The cuts do not have the impact that most people were hoping” for, Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, said in an e-mail, explaining the decline in the stock price.
BNY Mellon’s cost-cutting moves were not as aggressive as those taken by Boston-based rival State Street Corp. (STT), Cassidy said.
BNY Mellon said Aug. 10 it planned to cut 1,500 jobs, or 3 percent of its workforce. While no additional job cuts were announced today, Hassell said the bank would continue to move workers to cheaper locations, including Pittsburgh and Manchester in northern England.
Hassell defended the bank’s pricing of foreign-exchange transactions. BNY Mellon was sued last month by New York Attorney General Eric T. Schneiderman and the U.S. Attorney’s Office in Manhattan for overcharging clients on those trades.
Hassell said that while the accusations were “unfair,” he would be willing to settle the matter on “reasonable terms.”
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