Scharf’s Exit Leaves BNY Mellon Scrambling to Finish His Revamp
Scharf’s Exit Leaves BNY Mellon Scrambling to Finish His Revamp
(Bloomberg) -- Charlie Scharf is leaving Bank of New York Mellon Corp. in the lurch.
Just two years after joining the firm to speed up an overhaul of the custody bank, Scharf is on to his next project: leading a turnaround at Wells Fargo & Co.
The problem is, he wasn’t done transforming BNY Mellon. Todd Gibbons, who’s been with the firm for 30 years, was named interim chief executive officer on Friday, when Scharf announced his move. But no plans for finding a permanent replacement have been made public.
The abrupt departure leaves BNY Mellon without a long-term leader and little clarity on strategy at a time when declining interest rates and a shift from active to passive investing are putting increasing pressure on the bank’s profits. Shares of the company slid 4.5%, the steepest intraday drop in more than five months.
“We believe that Todd Gibbons is fully capable of running the company near-term, but the uncertainty of having an interim CEO and having to do a formal search process is an overhang for the stock,” Brian Kleinhanzl, an analyst at KBW, said in a note.
Expense Cuts
Gibbons, BNY Mellon’s third CEO in about two years, takes the helm as the bank faces pressure to slash expenses and boost organic growth. He’s been with the New York-based company for three decades, including a stint as chief financial officer for nine years. Most recently he was vice chairman and CEO of clearing, markets and client management.
Scharf vowed to turn the company into a technology-driven operation to spur revenue growth. He invested heavily in technology, but the changes haven’t been enough to offset industry pressures such as falling fees in the asset-management industry and, more recently, the Federal Reserve’s decision to start cutting interest rates again. Analysts are expecting both revenue and profit to decline this year from 2018, according to data compiled by Bloomberg.
“The new CEO will be inheriting all of the industry problems Scharf walked into, but the macro backdrop is probably more challenging” than when he took over, Paul Gulberg, an analyst with Bloomberg Intelligence, said in an interview. The departure puts BNY’s growth in question, according to Gulberg.
Scharf took over at BNY Mellon in July 2017 after a share price plunge led investors to push for changes in strategy. He picked up where predecessor Gerald Hassell left off in searching for ways to boost profits. Scharf moved the bank’s headquarters in an effort to cut costs and split the company’s biggest business, investment services, into three pieces to make it more responsive to customers.
While custody banking has always run on thin margins, fees across the asset-management industry face growing pressure as investors shift cash from active to passive funds, often shopping for the cheapest products. The Fed’s interest-rate cuts are adding to that pressure because lower rates mean less net interest income.
“Todd is an accomplished and respected leader who is well known to all of our stakeholders,” Joseph Echevarria, named by the company as non-executive chairman of the board, said in a statement. “He has been a driving force behind the development and execution of our strategic vision and transformation, and that will continue.”
To contact the reporter on this story: Michelle F. Davis in New York at mdavis194@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Dan Reichl
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