March 26, 2015 / 11:14 PM / 2 years ago

Exclusive: Headhunter contacts Morgan Stanley's Fleming about CEO job at BNY Mellon

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Gregory Fleming, president of Morgan Stanley Wealth Management and Morgan Stanley Investment Management, speaks during the Reuters Global Wealth Management Summit in New York June 16, 2014.Brendan McDermid

NEW YORK/BOSTON (Reuters) - At the prompting of at least one director of Bank of New York Mellon Corp, an executive recruiting firm has come up with a list of potential candidates to replace embattled CEO Gerald Hassell, two people familiar with the matter told Reuters.

    At least one of the candidates, Gregory Fleming, who runs wealth and investment management at Morgan Stanley, has been contacted by the recruiting firm Spencer Stuart to gauge his interest in the job at the world's largest custody bank, according to the two individuals and two additional sources.

The overture to Fleming does not appear to represent an official search effort by BNY Mellon's full 15-member board, which has so far supported Hassell despite rising pressure from activist investors concerned by his performance. Reuters sought comment from all of the directors, but none who were reached would speak on the record.

In a statement that it attributed to its board of directors, BNY Mellon said: "The Board is not conducting a search and fully supports our CEO. Any suggestion to the contrary is completely false." A spokesman for BNY Mellon said that Hassell was not available to comment.

Other names on the list of potential candidates include Mary Erdoes, who runs JPMorgan Chase & Co's asset management business, and Michael Cavanagh, a former JPMorgan executive who is now chief operating officer at private equity firm Carlyle Group LP, one of the sources said.

    It is not clear whether Spencer Stuart has contacted those people, and none of them responded to requests for comment. Spokespeople for JPMorgan, Carlyle, Morgan Stanley and Spencer Stuart declined to comment.

Pressure Builds

    Hassell has been under pressure for months from some large activist investors, including hedge funds Trian Fund Management and Marcato Capital Management. BNY Mellon gave a board seat in December to Nelson Peltz's Trian, which had a 2.6 percent stake in the bank at the end of 2014.

    Some investors and analysts have complained that Hassell's cost-cutting programs have not sufficiently boosted profit. He has missed some key financial targets, according to the bank's recently filed proxy statement, in which the board discusses Hassell's pay and 2014 performance.

    For example, the board awarded only 90 percent of Hassell's individual pay component for incentives after weighing a number of factors. Under his leadership, the bank missed an adjusted earnings per share target in 2014.

    On the plus side, the bank produced positive operating leverage, in which revenue grew more than expenses, according to the analysis in the proxy. And since Hassell replaced Robert Kelly on Aug. 31, 2011, BNY Mellon's stock has advanced about 92 percent. That is better than the 69 percent gain on the S&P 500 Index during that time. The New York-based custody bank safeguards $28.5 trillion in assets. 

    Hassell has said some savings from cost cuts have been absorbed by spending on improved technology. He has resisted suggestions from some investors and analysts that the bank separate its money management and custody businesses. He has said the units work better together.

    Fleming, 52, is a former investment banker who spent much of his career at Merrill Lynch. He was hired by Morgan Stanley CEO James Gorman in 2010 to repair its troubled asset management business, and later took on the role of wealth management as well.

    He is considered a leading candidate to replace Gorman if Gorman were to retire soon, but sources with knowledge of Morgan Stanley's strategy say that seems unlikely. People familiar with Fleming's thinking say he may leave to become CEO elsewhere if an attractive opportunity presents itself.  

    So far, Hassell has enjoyed majority support from a board that includes retired executives from Deloitte LLP, Liberty Mutual Group and Schering-Plough Corp.

    Earlier this month, Mick McGuire, who runs Marcato, went public in calling for the removal of Hassell. In a letter to BNY Mellon's lead director, Wesley von Schack, McGuire criticized the bank's leadership for setting "tepid" goals.

    Marcato owned a 1.6 percent stake in the bank at the end of December, filings show.

    Another big shareholder, who asked not to be named, said his fund also sent a letter to von Schack last week calling for Hassell's departure. Von Schack could not be reached for comment.

Additional reporting and writing by Tim McLaughlin; Editing by Richard Valdmanis and Martin Howell

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