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Horseman Capital raises position in BNY Mellon

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Horseman Capital and BNY Mellon

Horseman increased its position in BNY Mellon (BK) during 4Q14. The stock accounts for 13.16% of the firm’s total portfolio, up from 11.17% of the fund’s 3Q14 portfolio.

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Overview of BNY Mellon

The Bank of New York Mellon, or BNY Mellon, is a global investment company. Available in more than 100 markets worldwide, BNY Mellon’s services enable institutions and individuals to manage and service their financial assets. The company operates in two business segments:

  1. Investment management
  2. Investment services

The company’s other activities include credit-related services, a leasing portfolio, and corporate treasury activities.

Activist investor Trian gets BNY Mellon board seat

In December 2014, BNY Mellon agreed to give a seat on its board to Ed Garden, co-founder of Trian. Trian owns 2.6% of BK stock, though it is not the only hedge fund investing in the company. Marcato Capital Management also disclosed a 1.6% stake in BK in November. Viking Global Investors also owns 16.7 million BK shares.

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BNY Mellon acquired Cutwater Asset Management

On January 5, BNY Mellon acquired Cutwater Asset Management, a US-based fixed income and solutions specialist with a 20-year track record and approximately $23 billion in assets under management.

This acquisition will enhance BNY Mellon’s ability to offer specialized fixed income solutions.

Lackluster fourth quarter and full-year 2014 results

On January 23, BNY declared its fourth quarter and full-year 2014 results. Fourth quarter net income was $807 million, or $0.70 per diluted common share, up 7% year-over-year (or YoY). Adjusted net income was $667 million, or $0.58 per diluted common share, compared to $629 million or $0.54 per diluted share. Revenue was up 2% to $3.7 billion. On an adjusted basis, revenue declined 3%.

  • Revenue from issuer services was down by 19% YoY and 39% sequentially. Through issuer services, BNY services stock and debt issuers. The company was affected by fewer cross-border transactions, as BNY received lower dividend fees from its depositary receipts business.
  • Investment services fees increased 1%. This increase reflected organic growth, which was offset by lower depositary receipts revenue and the unfavorable impact of a stronger US dollar.
  • Investment management and performance fees decreased 2%, due to the unfavorable impact of a stronger US dollar and lower performance fees. Higher equity market values partially offset this decrease.
  • Non-interest expense decreased 5%. The decrease was driven by lower staff expense, the favorable impact of a stronger US dollar, lower asset-based taxes, and business development expense. Higher professional, legal, and other purchased services partially offset this decrease.

The company’s operating margin was 20% and return on equity was 5.7%. Both of these metrics were the lowest in 4Q14 among all quarters of 2014. The low interest rate environment and regulatory requirements are main factors that affect the margins and returns.

For the year 2014, net income was $3.1 billion, or $2.67 per diluted share. On an adjusted basis, net income was $2.8 billion or $2.39 per diluted share, compared to $2.7 billion or $2.28 per diluted share.

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Returns to shareholders

BNY repurchased 46.2 million common shares for $1.7 billion in full-year 2014. In the fourth quarter, the company repurchased 11 million common shares for $432 million. BNY also declared a dividend of $0.17 per share in the fourth quarter.

Horseman’s key positions in 4Q14

Horseman Capital added a new position in Alibaba (BABA). The fund increased its stake in TJX Companies (TJX), Vipshop Holdings (VIPS), BNY Mellon (BK), Wells Fargo (WFC), and Goldman Sachs (GS). The fund sold its positions in Comerica (CMA), Barrick Gold (ABX), IAMGOLD (IAG), and Harmony Gold Mining (HMY). The fund reduced its stake in Newmont Mining (NEM).

In the next part of the series, we’ll discuss Horseman’s position change in Wells Fargo.

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