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Bank of New York Mellon could issue TLAC debt due to change in living wills approach

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Bank of New York Mellon could issue TLAC debt due to change in living wills approach

will transition to a single-point-of-entry approach in its resolution planning,a move that could require additional debt issuance. As the bank'stoo-big-to-fail compliance procedures mature, executives expect expenses todecrease as the company relies on fewer consultants.

Speakingduring a July 21 second-quarter earnings call, executives said the move tosingle-point-of-entry, as opposed to a bridge bank strategy, will produce amore credible living will.

"Implementingthis [single-point-of-entry] strategy will likely result in some additionalexpense and may require us to issue additional [total loss-absorbingcapacity]-eligible debt," said CFO Todd Gibbons.

Atthe same time, the company said expenses should decline moving forward.Management highlighted increased use of robotics, elimination of several marketdata terminals and reduction of company-paid cell phones in favor of abring-your-own-device policy as drivers of cost savings.

Duringthe earnings call's question-and-answer period, an analyst asked how thecompany was able to cut expenses while increasing headcount. Management saidregulatory compliance also offered opportunity to cut costs despite higherexpenses from the single-point-of-entry strategy.

"We'veinsourced and are building a more sustainable capability to deal with theregulatory items that we're being asked to deal with. So instead of usingconsultants and a lot of third parties, we are building sustainable teams to beable to handle," said CEO Gerald Hassell.

Elsewhereon the call, management said a couple developments widely viewed as bankingheadwinds — Brexit and lower for longer rates — can actually be seen aspositives for the bank. The company has operations in Luxembourg, Ireland andBrussels, in addition to its U.K. presence, so that should allow the company toprovide assistance to clients needing to reposition assets post-Brexit. As forlow rates, the environment continues to pressure net interest margins but alsoprovides opportunities in asset management.

"Ifyou think about it, with a lower-for-longer interest rate environment andpension liability is not declining, these firms need to come up with a bettersolution to match the liabilities against the returns on the assets,"Hassell said. "That's exactly what our firm does."