5/11/2015 Presentation - Marcato Capital Management and Bank of

BNY Mellon
May 2015
DISCLAIMER
Marcato Capital Management LP (“Marcato”) is an SEC-registered investment adviser based in San Francisco, California. Marcato provides investment advisory services to its
proprietary private investment funds and to certain funds and accounts pursuing a single investment idea (each a “Marcato Fund” collectively, the “Marcato Funds”).
This presentation with respect to The Bank of New York Mellon (the “Presentation”) is for informational purposes only and it does not have regard to the specific investment
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Certain financial information and data used in the Presentation have been derived or obtained from filings made with the Securities and Exchange Commission (“SEC”) by the
issuer or other companies that Marcato considers comparable. Marcato has not sought or obtained consent from any third party to use any statements or information
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This document is confidential and intended solely for the addressee and may not be published or distributed without the express written consent of Marcato. This document is
not intended for public use or distribution.
Strictly Confidential. Not for Distribution.
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RHETORIC VS. REALITY
“Under Gerald Hassell’s leadership, BNY Mellon has continued to increase shareholder
value, reduce costs, improve margins and streamline the organization, which our
results clearly demonstrate”
─ Bank of New York Mellon spokesman, 3/10/15
Rhetoric
COSTS
33%
$10.7
$10.6
32%
$10.6
(1)
+4%
LTM Core Pretax Margins
Adj. Noninterest Expense
$10.5
$10.4
$10.3
$10.2
BUSINESS WINS ($B)
MARGINS
$10.2
$10.1
$1,600
$1,400
31%
AUC/A Business Wins
Reality
$1,200
30%
29%
28%
$1,000
$800
27%
$600
$10.0
26%
$9.9
25%
2011
LTM 1Q15
$400
LTM
3Q11
2012
2013
2014
LTM
1Q15
Rising Costs + Lower Margins + Ceding Market Share
(1)
Adjusts revenue for net securities gains, accretable discount, FTE adjustments, other gains/losses on asset sales, net income attributable to noncontrolling interests in
consolidated investment management funds. Adjusts expenses for amortization of intangible assets, M&I, litigation & restructuring charges, net charge related to
investment management funds, and other one-time charge. Also adjusted for sale of Shareowner Services and GIS / BHF acquisitions
Strictly Confidential. Not for Distribution.
1
RHETORIC VS. REALITY
“What I’ve been pleased to hear is the broad base support of our business models,
support of our leadership team and an agreement that we are executing on the right
things and moving in the right direction”
Rhetoric
─ Gerald Hassell, CEO, 4/14/15
Reality
“In your opening comments, you mentioned that many shareholders agree with
you that you're headed in the right direction. I respectfully submit that there's some
large shareholders who would not agree”
─ Mike Mayo, CLSA, 4/14/15
Marcato has spoken with other significant large shareholders who do not agree
Strictly Confidential. Not for Distribution.
2
RHETORIC VS. REALITY
“So what are our priorities?...delivering strong expense control and
operating leverage, no matter what the environment”
─ Gerald Hassell, CEO, 10/28/14
Rhetoric
Reality
“FLAT INTEREST RATE” TARGETS
Revenue
~4% CAGR
Expenses(1)
~4% CAGR
Net Income(1)
~4% CAGR
Revenue = Expense = Net Income Growth ≠ Operating Leverage
Management targets imply no operating leverage if interest rates do not rise
(1) Per 10/28/14 Investor Day and 4/7/15 Marcato Presentation
Strictly Confidential. Not for Distribution.
3
RHETORIC VS. REALITY
“Nobody is satisfied with the past performance. Everybody is very focused on being best-in-class in
everything we do” (Ed Garden, Director, 4/14/15)
“We certainly aspire to be best-in-class in everything we do” (Gerald Hassell, CEO, 4/22/15)
Rhetoric
Reality
JP MORGAN CIB(4) VS. BNY MELLON EXPENSE TARGETS
STATE STREET VS. BNY MELLON FINANCIAL TARGETS
120
8% – 12%
Revenue /
Employee(1)
~$470k
Adj. Pretax
Margins %(2)
~34%+
EPS Growth %
10% – 15%
ROE Targets
%
12% – 15%
>
>
>
>
>
3.5% - 4.5%
6% – 8%
~$326k
~$356k
28% - 30%
30% – 32%
7 – 9%
12 – 15%
~8%
~10%(3)
Flat
Normalized
115
Indexed Noninterest Expense
Revenue
Growth %
119
112
110
105
100
95
90
87
85
80
2014A
2015E
JPM CIB
2016E
BK (flat)
2017E
BK (normalized)
2014 Investor Day targets do not pursue “best-in-class” outcomes
(1)
(2)
(3)
(4)
At current level of employees and midpoint of revenue growth targets
Adds back amortization of intangibles. State Street margins implied by revenue and EPS targets
Per 4/14/15 Annual Shareholder’s Meeting transcript
Corporate & Investment Bank includes Treasury & Securities Services, Commercial Banking and Investment Banking. JPM 2014 expense excludes $1.5bn of legal expense incurred during the year
Strictly Confidential. Not for Distribution.
4