June 30 Activist investor Nelson Peltz has built up a $1 billion stake in BNY Mellon Corp in what could lead to a shakeup over lagging stock performance and rising operating expenses at the world's largest custody bank.
Shares of BNY rose more than 2 percent.
Peltz's Trian Fund Management LP "has recently contacted the Bank of New York Mellon to express its interest in discussing Trian's ideas and initiatives to drive long-term growth and enhance shareholder value with the company's management and its board," according to a person familiar with Trian's thinking.
Funds managed by Trian collectively own about 28.9 million shares, or about 2 percent, of BNY Mellon after adding to the stake in the first quarter, according to disclosures with the U.S. Securities and Exchange Commission and the person familiar with Trian's investment strategy.
"Trian is a respected investment firm," BNY Mellon spokesman Kevin Heine said. "We are looking forward to engaging with them, as we do all our investors." He declined to comment further.
BNY Mellon's shares were up 2.2 percent at $37.03 in midday trading on the New York Stock Exchange. But the stock has severely lagged the broader market's recovery over the past five years.
Trian is known for pressing for change at companies in which it invests. In October 2011, for example, Trian issued a top-to-bottom critique of BNY Mellon's top rival, State Street Corp, which it said had paid too much for acquisitions and sacrificed profits for revenue growth while allowing compensation expenses to balloon.
Trian also pushed State Street to consider separating the asset management and custody bank divisions. State Street kept its division intact, but did lower compensation costs.
Some analysts have criticized BNY Mellon for allowing its compensation costs to creep upward and have recommended that the bank spin off its asset management division.
CLSA Securities analyst Mike Mayo, for example, said in a February report that BNY had the worst pre-tax profit margin of its peer group and that the asset management arm would be more valuable if it were spun off from the custody bank.
BNY Mellon executives have been steadfast in keeping the asset management arm tied to the company's custody business. For example, at a May investment conference, Chief Executive Officer Gerald Hassell said asset management was complementary to investment services because its index and money market offerings were "extremely attractive to our servicing clients."
Over the past 12 months, BNY Mellon shares have rallied, rising 33 percent and beating the 22 percent advance of the Standard & Poor's 500 index. But over the past five years, the S&P 500 is up 113 percent, while BNY is up only 27 percent. (Additional reporting by Svea Herbst; Editing by Lisa Von Ahn)