Bank of New York Mellon is using one of Jamie Dimon’s top acolytes to inject some controversy into the custody war. On Monday it named as its new boss Charlie Scharf, once a top executive at JPMorgan and until December the chief executive of Visa. The surprise and immediate appointment was a shock for a part of the industry considered little more than a safe and stable utility-like business.

BNY is, with $30.6 trillion in assets under custody and administration, the world’s largest guardian of stocks, bonds and other assets for institutional investors, just ahead of State Street. It’s an essential but relatively low-margin business: despite its scope BNY Mellon’s $56 billion market value ranks it outside the top 10 U.S. financial firms.

Current boss Gerald Hassell is departing after spending almost half of his six years in charge trying to boost performance to placate activist investor Nelson Peltz. Hassell has since cut staff and office locations, got out of subscale activities and started shifting all clients onto a single custody platform in an attempt to hit a number of financial targets he set.

He has enjoyed a decent amount of success. Hassell has met his goal of a tangible return on equity of 17 percent to 19 percent, largely by slashing non-interest expenses. Net income rose 12.9 percent in the first quarter from the same period a year earlier, the ninth consecutive quarterly increase, and overall revenue growth of 4.3 percent hit the target he was shooting for. But fees and commissions on core custody and securities operations were up just 1.7 percent.

Overall, returns are on a par with State Street. But at around 14.8 times 2017 estimated earnings, before Monday’s announcement, BNY trades at a slight discount to its Boston-based rival. Meanwhile Northern Trust commands a multiple of some 20 times estimated net income.

Finding new sources of growth to close that gap won’t be easy. All three, as well as JPMorgan, are already battling for market share. Yet their clients face intense pressures from the shift to low-cost index investing strategies. BlackRock, the world’s largest asset manager, reported on Monday that its core management fees grew at less than half the rate of assets under management in the second quarter. Scharf brings BNY new blood – and handy skills in fintech and payments. But he will have to fight for every extra dollar.

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CONTEXT NEWS

- Charles Scharf is to replace Gerald Hassell as chief executive of Bank of New York Mellon, effectively immediately, the company said on July 17.

- Hassell, 65, has served as CEO for six years and will remain as chairman until the end of the year, when he will cede the title to Scharf. He said the change was the culmination of a long-term succession-planning process.

- Scharf was chief executive of Visa for four years until he stepped down in December 2016. Before that he held a number of roles at JPMorgan, including chief executive of retail financial services. He also served as chief financial officer of Citigroup’s global corporate and investment bank.

- BNY Mellon shares were up nearly 2 percent at $53.375 in afternoon trading.

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(Editing by Antony Currie and Martin Langfield)

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