Bank of New York Co. announced Friday that it plans to start a unit early this fall that would incorporate brokerage and technology offerings for institutional clients.
The banking company said the new unit will be a partnership with the private equity firm GTCR Golder Rauner LLC and Eze Castle Software, a trade-order-management vendor with 300 hedge fund relationships, to be called BNY ConvergEx Group. This unit will employ 635 people from BNY Securities and Eze Castle and will serve money managers, hedge funds, broker-dealers, corporations, and private equity firms.
It will also include the bank's BNY Brokerage Inc., Lynch, Jones & Ryan Inc., G-Port, Westminster Research Associates Inc., and BNY Jaywalk Inc.
Bruce Van Saun, the bank's chief financial officer, said in an interview Friday that the unit's structure is flexible enough to evolve with the market. In the near term, he said, it will focus on cross-selling existing products and services but would look to expand more aggressively in the long term.
"The partners have all agreed that we will have a war chest to go out and pursue further acquisitions down the road," he said.
Mr. Van Saun said access to independent research is important for institutional investors and the new unit may want to increase this capability.
The unit is expected to be established by the end of September, pending regulatory approval. It is to offer services that enable customers to manage all aspects of the trade life cycle, including idea generation, research, analysis, trading and execution, risk management, compliance, and portfolio management.
Joseph Velli, a senior executive vice president at Bank of New York, is to be the unit's chief executive officer and will relinquish his corporate post. He said during a conference call Friday that he sees big potential for cross-selling services to institutional clients, specifically hedge funds.
"We are working on a lot of major initiatives and new products that will be well received by the marketplace," he said. "This deal is about developing new things for the marketplace."
Tom McCrohan, an analyst at Janney Montgomery Scott, said he is very positive about the new unit because "the deal provides access to a leading trade-order-management vendor servicing the growing hedge fund community."
Jacqueline Reeves, an analyst at Ryan, Beck & Co., said the partnership would let Bank of New York leverage Eze Castle's hedge fund relationships and "capitalize on this growing segment of the investment market."
Mr. Velli said Eze Castle's overseas hedge fund clients could also be customers. Ms. Reeves said in her research note, however, that it isn't a forgone conclusion that the unit will be able to sell more products to all these customers.
"Successful penetration of this market segment remains uncertain - although we believe the new company is in a better position to compete - as these clients could already be working with similar capabilities" offered by competitors, she wrote.
Mr. Van Saun said the hedge fund market has grown explosively in the past decade. "When a market is growing with that kind of tail wind," he said, "there is a lot of share to go around. We are well-positioned now to grow with the market. We are not looking at a market share battle with the Goldmans. We are all going to be able to grow."
Mr. Velli added in an interview Friday, "We never pretend that we'll own the market. We believe that we can increase share, and not just with hedge fund managers. We already have a very strong presence with traditional managers who need these services as well."
