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Views divided over BoNY-Mellon merger

The recent merger of Bank of New York and Mellon Financial Corp has been greeted with concern by consultants, pension fund clients and industry insiders.

But some observers welcomed the announcement, arguing it would provide scale and lower costs. And the merging companies themselves said feedback has been "overwhelmingly positive" - and that client retention "is not going to be an issue".

The two banks said last month they would combine, with the loss of 3,900 jobs, into a new entity called Bank of New York Mellon.

"Our clients are naturally very cautious and concerned about what the next months and years will bring," said Joanne Parker, director of investor services at Thomas Murray, the leading custody consulting firm.

She told IPE: "There will be significant changes and with a merger of this scale there are significant execution and integration risks. There are concerns about dislocation of staff and uncertainty of
platforms. "Our clients are concerned about BNY overshadowing the merger, damaging momentum and both banks' clients suffering as a function of integration distraction."

She added: "There is still a lot unknown - like the impact on ABN Amro Mellon in Europe and CIBC Mellon in Canada. For Canadian and European clients these joint ventures are an added level of uncertainty."

Industry sources say they struggle to understand the rationale behind the deal, arguing that Mellon clients will be worried that service will decline under the Bank of New York.

That the deal was done in five to six weeks - and that the PR own goal of the "BoNY M" name was allowed to pass - is seen as evidence that it was put together too fast. And the lack of any immediate mention of the various joint ventures partners also suggests it wasn't fully thought through at the operational level, people say.

John Hopwood, chief investment officer of the £1.2bn Cambridgeshire Pension Fund, said: "There are doubts about whether ABN systems will continue as they are if they will be replaced by a Bank of New York platform."

Paul Dolan, secretary of the An Post Irish postal workers' scheme said: "It will be interesting to see if there are any economies of scale in relation to staffing and that the relationships are managed and maintained - particularly from a Mellon perspective if Bank of New York has the upper hand.

"If that is the case then we'd all have to consider our positions."

But others support the deal. Jonathan Hoffman, policy adviser at the National Association of Pension Funds, rejected suggestions that it would result in less choice for pension funds.

He said: "There still remains choice. I don't myself detect concern among pension funds that this merger produces a restricted market." The transaction might even be good for competition, in that it would see another provider with "critical mass".

Railpen finance director Frank Johnson told IPE: "We welcome the merger in that the new entity will have greater scale and will be able to provide a broader range of products and services.

"On the other hand, we have operated a two-custodian model for a number of years and we will therefore be monitoring developments closely.

"Our agreements with both custodians do not have fixed terms but can be terminated by giving notice in accordance with the terms set out in the contracts."

Penelope Biggs, head of corporate and institutional services' global sales at rival Northern Trust, said: "For anyone going through such a transformational merger the impact can be huge - to both staff and clients.

"Where you are merging two organisations with broadly the same products, services and functions - primarily to acquire scale - the knock-on impact can be very significant for all concerned."

A joint statement to IPE from BoNY, Mellon and ABN Amro Mellon said: "We are speaking to all of our clients and consultants about this integration and how to minimise any impact. Indeed we have already been in touch with most of them, and so far their feedback has been overwhelmingly positive.

"We are committed to being not only the biggest but also the best, by providing our clients with a high quality service tailored to their specific needs. We are not going to relinquish our No. 1 ranking for customer service."

The firms added: "We fully expect that some concerns may be raised. We would encourage both clients and consultants, however, to work alongside us to understand the benefits of the merger and ensure that it has minimal impact."

And they said: "Given the economics of the modern global custody business, we would not be surprised if some of the other large custodians did not follow our lead sooner rather than later."

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