November 13, 2014 / 6:00 PM / 5 years ago

UPDATE 1-Activist hedge fund Marcato takes stake in BNY Mellon-filing

(Adds details on company, share performance)

By Svea Herbst-Bayliss and Tim McLaughlin

BOSTON, Nov 13 (Reuters) - Hedge fund Marcato Capital Management has bought a 1.6 percent stake in the Bank of New York Mellon, becoming the second prominent activist investor in recent months to disclose a position in the world’s largest custody bank, according to a regulatory filing.

San Francisco-based Marcato’s stake is valued at $688 million, making it the biggest position of the $3 billion firm, according to the filing, which details holdings at the end of the third quarter.

Marcato’s announcement comes just months after activist investor Nelson Peltz’ Trian Partners said in June that it had taken a position valued at $1.05 billion stake in the company and wanted to talk to management about improving shareholder value.

BNY Mellon’s management has been criticized by analysts and some investors for a lagging stock performance and rising operating expenses.

Its shares have lagged the S&P 500 index over the past five years, rising 44 percent against the benchmark’s 87 percent rise. But this year, the bank’s stock has gained 13 percent, besting the benchmark’s 10 percent gain.

On Thursday, investors trimmed some intraday losses after the news of Marcato’s stake was released, leaving it off 1.26 percent at $39.24.

The company is streamlining operations and has sold off its corporate headquarters. It is also exiting its derivative sales and trading business and is selling corporate trust operations in Japan and Mexico.

Analysts, however, were largely disappointed when management laid out targets at last month’s investor day, its first in three years. Earlier this year, CLSA analyst Mike Mayo had also urged the company to consider spinning off its asset management division.

Marcato, run by former Pershing Square Capital Management partner Richard McGuire, is also invested in Sotheby’s where it has been pushing management for changes.

A spokesman for Marcato was not immediately available for comment. (Reporting by Svea Herbst-Bayliss, editing by G Crosse)

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