Tuesday, December 05, 2006

TD Bank's Former Executive to Lead Combined BoNY-Mellon

The Globe and Mail, Sinclair Stewart, 5 December 2006

Six years ago, Bob Kelly caught an unlikely break: He was passed over in the race to replace Charles Baillie as chief executive officer of Toronto-Dominion Bank, and promptly handed in his resignation.

Losing out on the chance to run a Big Five Canadian bank doesn't exactly reek of serendipity. But Mr. Kelly, unlike many bridesmaids in the blood sport known as succession, used that snub as a springboard to build a high-profile U.S. career, one that culminated yesterday with his appointment as CEO of the newly combined Bank of New York Mellon Corp. Bank of New York's $16.5-billion (U.S.) takeover of Mellon Corp. will create the world's largest custodian of financial assets and the 11th ranked financial services firm in the United States -- bigger, incidentally, than TD. It will also likely make Mr. Kelly, who only took the helm of Mellon this year, the most powerful Canadian in U.S. banking.

"He's in the biggest game," said one senior Canadian banker who has followed his rise. "Bob has, through a career path that has allowed him to see more and accumulate more in terms of experience, ended up in a much bigger market being a very big player. And he's just starting."

The Halifax-born Mr. Kelly, a 52-year old cycling and archery enthusiast, got his start with TD in 1981, thanks in part to his self-taught computer skills. The bank recruited him from a consulting firm in Halifax , and then dispatched him to London as controller of its European and African businesses. While he was in Britain , Mr. Kelly picked up an MBA from City University and moved to the trading department, eventually assuming responsibility for the bank's global derivatives business. After returning to Toronto , he rose to more senior positions, including chief financial officer and later head of retail banking.

"He moved up the ranks of TD very quickly," said Stephen McDonald, the co-CEO of Scotia Capital and a colleague of Mr. Kelly's for nearly two decades at TD. "He's quite personable, quite down to earth. He's a very capable manager, and a very logic-based individual. He really is a student of the banking business."

Both Mr. Kelly and Mr. McDonald were once viewed as heirs to the TD throne. But after the bank acquired Canada Trust, a reverse cultural takeover took place, and it soon became apparent that newcomer Ed Clark -- not Mr. Kelly -- would be tapped to replace Mr. Baillie.

Mr. Kelly left in 2000, and decided to move south, where he joined First Union Corp. as CFO and helped spearhead that bank's $13-billion takeover of Wachovia Corp. He was named CFO of the year in the large-capitalization banking sector in consecutive years by Institutional Investor, and widely credited by analysts with helping to make the deal a success.

"I've been very lucky in my entire career," Mr. Kelly said in an interview. "I've been very fortunate to have lived in Toronto and London and Charlotte [N.C.]. I must tell you that Canadian banks are tremendously well managed. I learned a lot from my time at Toronto-Dominion."

He surprised many investors in February by leaving Wachovia to take the reins of Mellon, the storied but struggling financial institution that was facing pressure from shareholders to split its custody business from its asset management arm. In his first turn as a CEO, he managed to appease those investors, and the stock has responded with a 17-per-cent increase prior to yesterday's merger announcement.

"He lays out the plan and says exactly what will happen on a play-by-play basis," said Jackie Reeves, an analyst at Ryan Beck & Co. "He articulates who will be doing what in terms of making it happen and has delivered, and that's brought him tremendous credibility with Wall Street and shareholders."

Mr. Kelly was rumoured to be a suitor for MFS Investment Management, the U.S. mutual fund company controlled by Toronto 's Sun Life Financial Inc., as a way to bulk up Mellon's wealth management business.

As those rumours circulated, Bank of New York chairman and CEO Thomas Renyi phoned Mr. Kelly while he was travelling in London and tossed out the idea of a possible deal.

The idea was to combine the asset management capabilities of Mellon with the asset servicing strength of Bank of New York. Asset servicing encapsulates a wide range of largely administrative functions for investors and financial clients, from custody to back-office duties.

"There have been very few transactions done over the last five or 10 years in the United States that are more financially compelling than this one," Mr. Kelly said.

The only major issue he flagged was timing. His wife, Rose, only moved into their Pittsburgh home last week, and now the couple will be house hunting in New York , where Mr. Kelly will be based after the deal closes next year. Mr. Renyi will stay on as chairman for 18 months following the deal.
MarketWatch, John Spence, 4 December 2006

Robert Kelly, the executive selected to lead the new financial-services powerhouse to be created by the merger of Bank of New York Co. and Mellon Financial Corp., brings to the job a solid reputation for integrating big acquisitions and articulating strategy to Wall Street and investors.

The 52-year-old Mellon CEO has been tapped to run what would be the world's largest global custodian with $16.6 trillion, and also a top-five U.S. asset manager at over $1.1 trillion. See related story.

Bank of New York CEO Thomas Renyi has been tapped to serve as executive chairman of the combined company for about a year and a half after the transaction closes.

Kelly, who became Mellon's CEO in February, succeeding Martin McGuinn, was previously chief financial officer at Wachovia Corp., where he was known as a skilled communicator who did some of the heavy lifting in the integration of several businesses acquired through deals.

Before that, he worked for 19 years at Toronto-Dominion Bank, according to his Mellon biography.

Kelly was involved with Wachovia's merger with bank First Union Corp., the combination of its retail brokerage arm with Prudential Financial Inc.'s, and the acquisition of SouthTrust Corp.

"Robert Kelly is well-respected and an accomplished deal maker," said Jeffrey Ptak, an analyst at investment researcher Morningstar Inc., in an interview Monday.

"Wachovia did a good job folding the businesses they bought into the company, and that's been a key to their success and a feather in Kelly's cap," he added.

The selection of Kelly as CEO "allows the new company to have a young committed leader who is capable of taking advantage of the benefits that the new company has," wrote Punk Ziegel's Dick Bove in an analyst note.

Kelly is also lauded by analysts for clearly conveying strategy and following up with successful execution. Mellon's stock was up about 17% so far in 2006 through Friday's close.

"He lays out the plan and says exactly will happen on a play-by-play basis," said Jackie Reeves, an analyst at Ryan Beck & Co. "He articulates who will be doing what in terms of making it happen and has delivered, and that's brought him tremendous credibility with Wall Street and shareholders."

Kelly was unavailable Monday for an interview, but he did address the media in a morning conference call, saying he was "honored" to lead the new company, which is to be known as Bank of New York Mellon Corp.

The CEO said securities servicing and asset management are highly complementary businesses poised to grow on continuing globalization. Mellon owns the Dreyfus mutual-fund family.

"There are enormous revenue synergies, and the expense savings are material but realistic," Kelly said during the call. "There are tremendous opportunities offshore."

Within the asset-management business, he said that the U.S. is "competitive" but that Europe is "just starting" and should see solid growth over the next five years, "and Asia for who knows for how long after that."

Yet Kelly acknowledged that in the short term, a major challenge will be to not to lose any customers during the integration period, and to avoid disruptions.

"You don't lose customers if you don't do anything bad to them," he said. "We did build into our model some attrition, but we'll hate it if we lose any customers."

Observers say Kelly, who speaks with a slight Canadian accent, has a no-nonsense, accessible management style.

"He's from Eastern Canada, which is sort of like the Midwest of the U.S.," said Gerard Cassidy, lead banking analyst at RBC Capital Markets.

"He has a self-deprecating style and is very approachable," Cassidy noted. "He's a straight shooter who tells you how it is, and he doesn't beat around the bush, even with bad news."