Less than three weeks after closing its megamerger, Bank of New York Mellon Corp.’s chief executive officer said the company should see “significant” revenue from cross-selling opportunities and relatively low client attrition in the next three to five years.
Robert P. Kelly said in an interview Thursday that the merger has created opportunities to cross-sell between asset management and asset servicing, asset management and the Pershing LLC clearing platform, and Bank of New York’s corporate trust business and Mellon’s asset management business.
“There are meetings going on all around the company,” he said, “and we are already seeing spaces where we can increase revenue by putting different businesses together. We are just starting to dive in to our client bases to identify the opportunities client by client.” Related Links
In December, Bank of New York Co. agreed to buy Mellon Financial Corp. for $18.3 billion. When the deal closed July 1, Bank of New York Mellon became the largest custody bank in the world, with more than $20 trillion of assets under custody and $1.1 trillion of assets under management.
The company has named Torry Berntsen, chief client management officer at Bank of New York Mellon, to be its “revenue czar,” Mr. Kelly said. Mr. Berntsen is responsible for tracking the companies’ integration and ensuring that each business line is developing additional revenue by cross-selling.
The CEO said he is expecting 2% to 3% client attrition during the course of the integration. And with client overlap of only 15%, he said, there are numerous opportunities to cross-sell.
Such attrition would be low compared with the 10% attrition that State Street Corp. faced after buying Deutsche Bank AG’s global securities servicing business in January 2003. Mr. Kelly said the differences between his merger and State Street’s acquisition are significant.
Deutsche Bank’s global securities servicing “was broken and having quite a bit of attrition already. State Street did a good job of stemming the losses and keeping attrition at 10%,” Mr. Kelly said.
In contrast, Bank of New York and Mellon “have wonderful momentum and great synergy opportunities, and I am certain attrition will be quite low,” he said.
Both Mellon and Bank of New York have been able to generate business from customers since the deal was announced, he said, and “if people were concerned, they’d already be voting with their feet.”
Analysts, who are typically skeptical when banks pledge to increase cross-selling, are optimistic about Bank of New York Mellon’s aggressive plan.
“Cross-selling is challenging in the traditional banking space, but when it comes to the fee-based banks, State Street has already proved it is possible,” said Gerard Cassidy, an analyst at Royal Bank of Canada’s RBC Capital Markets Corp. “Cross-selling can be a legitimate revenue driver because of the complementary nature of the products they are offering.”
It all begins with client retention, Mr. Cassidy said, and this is why Mr. Kelly was named the company’s chief executive.
“Bob Kelly came from First Union, and he was able to contain attrition when First Union and Wachovia merged because he knew the key metrics to focus on,” Mr. Cassidy said. “He knew it was important to keep customers satisfied and the importance of holding customers’ hands during this process.”
Timothy Keaney, a co-chief executive officer of Bank of New York Mellon’s asset servicing division, said during the parent’s second-quarter earnings conference call that the post-merger company wants to begin by going after “low-hanging fruit.”
For example, he said, before the merger Bank of New York’s custody business was capturing less than 10% of its $165 billion in cash balances.
“With the powerhouse that is Dreyfus, Standish Mellon, and other cash management capabilities that legacy Mellon offers, the merged organization brings to the table a lot of cash management alternatives that legacy Bank of New York clients would’ve never had access to,” he said.
James Palermo, also a co-chief executive officer of Bank of New York Mellon asset servicing, said during the call that Bank of New York offered a series of fund accounting and fund administration services outside the United States that Mellon did not offer. “We have just started to peek into each other’s client base over the last few weeks, and we see a lot of opportunities there,” he said.
Mr. Keaney said Bank of New York Mellon plans to train all its relationship managers on the full range of asset management products that the combined company offers.
“This is a massive opportunity,” he said. “We have 4,600 clients worldwide that want to do more business with fewer companies, and our asset management business wants to take advantage of that.”
On Thursday, the two companies reported quarterly earnings separately for the last time, and each beat analyst expectations. Bank of New York’s net income declined 0.6%, to $445 million, or 58 cents per share; Mellon’s rose 19%, to $275 million, or 66 cents per share.
Excluding merger costs, Bank of New York said it earned 63 cents per share, topping the average of analyst estimates by two cents, according to Thomson Financial Inc. Mellon, which was based in Pittsburgh, said its net income, excluding merger costs and a tax gain, was 69 cents, beating the average estimate by seven cents.
Fees from securities servicing rose 19%, to $1.09 billion, at Bank of New York, and 11%, to $333 million, at Mellon. Bank of New York’s assets under custody grew 24%, to $14.9 trillion, and Mellon’s rose 20%, to $5.5 trillion.
Bank of New York Mellon has been an active acquirer even after its merger.
On July 5, Mellon Bank announced that it agreed to buy ABN Amro Holding NV’s 50% stake in their joint venture, ABN Amro Mellon Global Securities Services. The joint venture, established in 2003, supplies global custody and related services to institutions outside North America. The transaction is expected to close this quarter, and the unit is expected to become part of Bank of New York Mellon.
Mr. Kelly said during the earnings call that it was important to get this deal done near the date when the parent companies’ merger closed.
“We wanted to offer one, integrated offering on one platform in Europe,” he said. “By getting this done, we have delivered absolute clarity to our clients in Europe.”
Mr. Kelly said during the interview Thursday that Bank of New York Mellon wants to continue developing its presence internationally. Though he gave no specific timeline, he said he expects eventually to generate half the company’s revenue overseas.
In the quarter Bank of New York generated 32% of its revenue overseas and Mellon 26%.
