Pershing under the knife at BNY Mellon?

Pershing under the knife at BNY Mellon?
Planned job cutting by parent BNY Mellon could sweep away jobs at the custodian that's a mainstay for independent B-Ds. .
AUG 10, 2011
The job cuts announced today by Bank of New York Mellon Corp. could hit the bank's Pershing LLC division, the largest clearing and custodial firm for independent broker dealers and investment advisers. The bank, like most financial institutions, is girding for a prolonged economic slump and looking for ways to cut costs. “Expenses have been growing unsustainably faster than [revenues,]” said BNY Mellon CEO Robert P. Kelly in a statement issued this morning. The bank plans to cut approximately 1,500 jobs, or 3% of its workforce. Pershing LLC is the 800-pound gorilla in the clearing and custody business, having built a dominant market share servicing brokers and advisers in their advisory practices. The bank has not announced whether cuts were forthcoming for the division, which currently employs slightly more than 6,000 people. “Cost reductions are being looked at by all our businesses globally, but the process is just getting started,” said Kevin Heine, a spokesman for BNY Mellon. “We'll determine where the reductions will be made in the months ahead.” A Pershing spokesman had nothing further to add. The extraordinary volatility in investment markets over the last two weeks has undoubtedly boosted trading volumes and helped business at the clearing firms, but industry dynamics have been tough for a couple of years. Brokers and advisers are demanding lower ticket charges and expecting more help from their clearing firms with technology and growing regulatory requirements. What's more, the firms are making little money on margin lending and customer cash balances because of extremely low interest rates. The factors have all contributed to shrinking margins, and for many firms, steep losses. Last week, Penson Worldwide Inc, one of the largest clearing firms for broker-dealers, announced initiatives to reduce annual costs by $24 million through asset sales, outsourcing arrangements and streamlining operations. The Dallas-based firm reported a loss of $30 million in the second quarter — in part due to a write-down of customer collateral. BNY Mellon does not disclose separate financial information for Pershing. But more than likely, it's not so profitable that it will be spared the knife in these conditions.

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