Trian Said to View Rising Rates as ‘Rocket Fuel’ for BNYSimone Foxman and Charles Stein
Trian Fund Management’s Ed Garden, whose activist firm owns a stake in Bank of New York Mellon Corp., said shares of the custody bank would surge once the Federal Reserve raises interest rates.
An increase in the Fed’s rate by 70 basis points over the next three years would act as “rocket fuel” for the stock, Garden said Feb. 4 at the EnTrust Investment Summit in New York, according to a person who attended and asked not to be named because it is a private event. Even with no interest rate movement, BNY Mellon shares could generate an internal rate of return of 30 percent by cutting costs and increasing margins, according to Garden.
BNY Mellon shares rose on Thursday in New York trading, along with those of other custody banks. BNY Mellon gained 2.3 percent to $38.01 at 10:59 a.m. Boston-based State Street Corp. rose 1.8 percent to $75.11 and Chicago-based Northern Trust Corp. rose 1.5 percent to $68.77.
Custody banks have been hurt by record low interest rates, which reduce income from investing and lending. BNY Mellon, the world’s largest custody bank, agreed to give Garden a seat on its board in December. Trian, whose founders include Nelson Peltz and Peter May, disclosed in June that it held a stake in the New York-based bank and owned about 2.6 percent of shares as of Jan. 28, according to data compiled by Bloomberg.
Trian sold its positions in State Street in the third quarter of 2013, about two years after the activist firm admonished State Street’s board of directors for poor performance. State Street cut costs and returned capital to shareholders during the two-year period and the shares more than doubled.
Garden, in his remarks at today’s conference, said Trian would work to boost margins at BNY Mellon, much as it did at State Street. He also praised the BNY Mellon’s strong balance sheet.
Kevin Heine, a spokesman for BNY Mellon, declined to comment, as did Anne Tarbell, a spokeswoman for Trian.