BNY Mellon Falls as CEO Scharf Tells Investors to Be Patient

(Bloomberg) -- Bank of New York Mellon Corp. fell the most in two years after Chief Executive Officer Charles Scharf said that investors looking for a quick improvement in the bank’s performance needed to be patient.

“We are focused on increasing the rate of revenue growth,” he said on a conference call. “Given the nature of our business it takes time.” Scharf also painted a mixed picture of the business, saying there were “pockets of strength,” as well as “softness,” in the investment management unit which experienced outflows.

BNY Mellon slid 5.6 percent to close at $52.73 in New York, the biggest drop since June 2016.

Scharf, who took over almost exactly a year ago, has been under pressure from investors to boost the bank’s organic growth, improvement without the benefit of a rising stock market and rising rates. He decided to take the money the bank got from the corporate tax cut and plow it back into the business, boosting technology spending by $300 million this year.

“Instead of giving you a gift now they are saying we will give you a gift somewhere down the road,” said Marty Mosby, an analyst with Vining Sparks.

Revenue Challenges

BNY Mellon reported second-quarter earnings of $1.03 a share on Thursday, narrowly exceeding analysts’ estimates. Revenue rose 5 percent from a year earlier to $4.14 billion. But that gain was less than the 9 percent achieved in the first quarter.

Revenue grew 8 percent in the investment services business, while it rose 3 percent in investment management.

On Wednesday, custody bank rival Northern Trust Corp. reported earnings that exceeded estimates. The results sent the shares up 4.7 percent, the biggest gain in three months. State Street Corp. reports results on Friday. Custody banks keep records, track performance and lend securities for institutional investors. They also manage money for individuals and institutions.

Scharf’s predecessor Gerald Hassell boosted profits and margins by clamping down on expense growth. He moved employees to cheaper locations, sold the bank’s headquarters at 1 Wall Street and streamlined technology operations.

Cost Savings

Under Scharf, the bank moved its headquarters again, a shift he said would save $20 million a year starting in 2019. In November, BNY Mellon said it would combine three of money-management units into a larger business that will oversee about $560 billion. At the same time, he split the company’s biggest business, investment services, into three pieces to make it more responsive to customers.

At an investor day in March, Scharf was peppered with questions about how fast the bank could grow. “We don’t know,” he told the analysts. “If we put numbers on a piece of paper we would be making it up. I don’t view it as our job to tell you things that we don’t know.”

At least one major shareholder has expressed its confidence in the company. Warren Buffett’s Berkshire Hathaway Inc., added to its position in BNY Mellon in the fourth quarter of 2017 and the first quarter of 2018, becoming the bank’s second-largest shareholder, according to data compiled by Bloomberg.

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