US bank chief warns private equity investors

THE CHIEF executive of Bank of New York Mellon (BNY Mellon), one of the top five employers in the IFSC in Dublin and the largest fund administrator in Ireland, has warned that private equity must not “underinvest” in internal audit and risk management if they take stakes in the Irish banks.

Bob Kelly said new capital was needed in the banks but that new investors must not underinvest in risk management. “That may feel good in the short term, if you are reducing expenses. But over the long term, it does not create a sustainable franchise,” he said.

Speaking on a visit yesterday to BNY Mellon’s offices in the IFSC, where it employs almost 1,000 people, Mr Kelly said new forms of capital in the banks were “good”.

“It is understandable that private equity players around the world are very interested in equities that are really stressed because there is enormous potential upside over time and I can see why private equity could be interested in Ireland today,” he said.

Private equity firms, including the Mallabraca consortium which involves JC Flowers and Carlyle Group, have engaged in talks with Bank of Ireland about making a potential investment in the bank.

Mr Kelly said private equity firms were generally finding it difficult to secure funding as “leverage is an extraordinarily difficult thing to obtain from people because they are so risk-adverse. The central issue is that the economy is still declining rapidly.”

BNY Mellon, which was named the largest fund administrator in Ireland last month by Lipper, the Reuters-owned research company, had assets of $335 billion (€250 billion) under management at the end of June. The company also employs 230 people in Cork.

The company is the world’s largest custodian of financial assets, with $23 trillion worth under management.

Mr Kelly said the company’s revenues would grow by 10 per cent this year, but by a smaller amount next year, though it is still increasing its share of the global asset management market.

The company has increased its Irish workforce from about 800 to just more than 1,200 over the past year. Mr Kelly said there was a possibility that BNY Mellon would move some of its European businesses to Ireland but that the company had nothing planned as yet.

Meanwhile, Bank of America said it planned to cut up to 35,000 jobs over the next three years as the economic slowdown dampens business activity.

Mr Kelly said: “Given their acquisitions, there is bound to be redundancies and overlapping businesses.

“If there is no business to be done, you can’t have people being unproductive.”