9 October 2019: Nothing sums up the transformation that Charlie Scharf started at BNY Mellon better than a scathing indictment of the bank’s previous digital strategy from Roman Regelman, hired by Scharf in 2018 to spearhead the digital drive. Regelman said in September: “I’ve seen banks that tout what I call the Silicon Valley model. They invest heavily in innovation hubs filled with beanbag chairs and red felt billiard tables. Drones are flying all over the place. These things create a lot of buzz and hype, but as exciting and hip as they might appear to be, they don’t fundamentally change the core of the bank.”
By the end of 2016, BNY Mellon had opened eight innovation hubs (one of them in Silicon Valley). Whilst they may not have had all the toys that Regelman mentioned, the outcome was spot on: nothing changed as a result of all the activity. That explains why Regelman, head of digital, describes his mission as “Digitizing This Very Bank”. It starts from the inside out.
With Scharf gone, after barely two years as CEO, what happens next? The interim CEO, Todd Gibbons, was quoted as saying: “If people expect me to slow the change agenda, I think they’ll be mistaken. There’s an energy here that wasn’t here a few years ago.” Gibbons is right: Scharf may not have had time to do much to change the O&T architecture, but one thing he did change was purpose. BNY Mellon feels different today: even small things, like the new HQ building in New York, have made its people feel better about working for the bank. More importantly, Scharf put together a team – a blend of both external and internal talent – that looks immeasurably better equipped to transform the business.
That transformation was long overdue. If you want to pinpoint a moment when things started to go wrong, it would have to be when the board, newly configured after the 2007 BNY/Mellon merger, agreed that the bank would forego valuable profit margin in exchange for deferring critical decisions on platform consolidation in an effort to keep clients happy. From that moment forward, the bank’s IT department was on the back foot, talking about consolidation without actually doing very much about it at all. Neither then-CEO Bob Kelly nor his successor, Gerald Hassell, were prepared to what should have been done.
By the time Scharf arrived, some things were starting to change. The high-profile CIO, Suresh Kumar, had been replaced in 2017 by Bridget Engle from Bank of America. Scharf lost no time in reshaping the investment services senior management team, promoting Hani Kablawi to run global asset servicing. He also brought in Regelman, as well as a new head of strategy, a new chief marketing officer, and a head of operations, inter alia. These people, in turn, began to build out their own teams, and really good people started to join at all levels.
Today, the bank’s asset servicing business is almost unrecognisable. It has built and delivered impressive product capabilities across ETFs, private assets, TA and distribution analytics, as well as responding quickly to State Street’s purchase of Charles River with its closer linkages to Aladdin and Bloomberg. Good people continue to join the enterprise, whilst it has won several blue-chip client mandates, including Microsoft, ATP and Goldman Sachs.
Still to do: a more compelling message for its middle-office capabilities (it hired Theresa Messina from Goldman Sachs to lead its MO business), the conversion of Eagle to a fully public/private cloud-based solution, better connectivity solutions to provide easier access for clients, and the seamless integration of markets and treasury products. All this, of course, is against the background of a very challenging environment, so it’s not going to be easy.
But…the good news is that BNY Mellon now has the people – and the intellectual capital – to do it. Two years ago, that wasn’t the case. And that is likely to be Scharf’s enduring legacy: within those two years, he made people think differently about the bank and its capabilities and challenges. Today, there is a can-do attitude and a genuine belief that, in its chosen sectors, it can compete with, and beat, its closest rivals. Critically, there is also a much clearer focus on execution: BNY Mellon no longer considers winning the deal to be the main event. Instead, it is much more focused on successful implementation and onboarding.
Now the board needs to choose a new leader who can continue this revolution. Although Scharf has a banking pedigree, he was primarily chosen for his tech awareness. The bank could do worse than appoint someone with a similar skill set.