BNY Mellon's Diversified Businesses Help It Weather the Current Environment

Equity Analyst

Rajiv Bhatia

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With over $46 trillion in assets under custody or administration, Bank of New York Mellon is the largest custodian in the world. While core custody can be an undifferentiated offering, scale and the stickiness of clients have helped the firm generate double-digit returns on tangible equity. 

BNY Mellon’s investment servicing segment is much more than asset servicing; it offers issuers services that include corporate trustee and depositary receipts such as ADRs. Though it is the largest provider of depositary receipts, BNY Mellon has lost ground to competitors. BNY Mellon’s clearance and collateral management (about 7% of revenue) is unique in that it is the sole provider of tri-party repos for U.S. government securities. Pershing, which BNY acquired in 2003, provides broker/dealer clearing and Registered Investment Advisor custody services and has been a bright spot for BNY Mellon. We expect Pershing to continue to benefit from the secular growth of RIAs.

About one fourth of the firm’s revenue is from its nearly $2 trillion asset-management business. Given the lower switching costs, we’d consider the asset-management division to have a narrower moat than the investment servicing division. 

The largest impact to the firm’s revenue from COVID-19 has been from low interest rates, both on net interest income and on fee waivers on money market funds. The firm’s net interest margin was 1.09% in the fourth quarter of 2019 and bottomed at 0.67% in the first quarter of 2021. Money market fee waivers were de minimis right before the pandemic and hit an annualized impact of $1.1 billion in the fourth quarter of 2021. Fee waivers have mostly gone away and by the fourth quarter of 2022, net interest margin had recovered to 1.19%.

BNY Mellon has faced criticism for a lack of cost control and integration failures in the Mellon merger. While we acknowledge some of the criticism, management in recent years has been aggressively focusing on expense control, and the firm consistently sees 15%-plus returns on tangible equity. That said, inflation is becoming more of a challenge on expense control.

Business Strategy & Outlook

We believe the custody business tends to be a wide-moat business built on cost advantages and switching costs. BNY Mellon edges out State Street as the number-one custodian based on assets under custody or administration. Given the low basis points paid for custody services, we believe this is a business where scale matters. There are large up-front costs to developing software systems and processes to serve a high amount of assets. As an example, State Street and BNY Mellon each spend over $2 billion on technology annually, a level that smaller firms cannot match. 

Clients of BNY Mellon’s investment servicing face switching costs due to process disruption, the interconnectedness of clients’ workflows, and the custodian’s infrastructure as well as onboarding costs. As a result, we believe BNY Mellon’s clients tend to be sticky.

Within asset servicing, the firm’s hedge fund administration business is a lucrative business for BNY Mellon, in our view. Given that hedge funds have high fees, they are less sensitive to the basis points paid for fund administration fees. In addition, in some cases, these fees are passed through to investors. Finally, during investor due diligence, switching fund administrators can invite additional scrutiny in a similar way as switching auditors can.

On the less moaty side is BNY Mellon’s investment-management and wealth-management business, which contributes about one fourth of the firm’s revenue. We believe its narrow moat is based on scale; switching costs from investor inertia though this segment face strong competition from large asset managers such as BlackRock, Vanguard, Fidelity, and State Street.

Wide

Economic Moat

Bank of New York Mellon

Pershing is a subsidiary of The Bank of New York Mellon. Pershing has nearly $1 trillion in assets under administration. The Bank of New York Mellon has more than $25 trillion in assets in custody.

Pershing

The Bank of New York Mellon Corp. is a bank holding company, which engages in the provision of financial services. It operates through the following segments: Securities Services, Market and Wealth Services, Investment and Wealth Management, and Other segment. The Securities Services segment includes Asset Servicing business, which provides global custody, fund accounting, integrated middle-office solutions, transfer agency and data and analytics solutions. The Market and Wealth Services segment comprises industry leaders pershing and clearance and collateral management, and treasury services business. The Investment and Wealth Management segment provides services to institutional and retail investors, as well as investment management, wealth and estate planning. The Other segment which includes the leasing portfolio, corporate treasury activities, derivatives and other trading activity. The company was founded by Alexander Hamilton on June 9, 1784 and is headquartered in New York, NY.

Earnings data Q1 2024

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BNY Mellon stock (NYSE: BK) has gained 12% YTD as compared to the 22% rise in the S&P500 index over the same period. Further, at its current price of $51 per share, it is trading slightly below its fair value of $54 – Trefis' estimate for BNY Mellon's valuation.

Underperforming The S&P By 10%, Where Is BNY Mellon Stock Headed?

NEW YORK--(BUSINESS WIRE)--Behavox today announced that BNY Mellon (NYSE: BK), the world's largest custodian has selected Behavox to enhance its compliance program.

Behavox Selected by BNY Mellon to Provide Next Generation AI Solution for Its Compliance Program

BNY Mellon stock (NYSE: BK) currently trades at $50 per share, around 22% below (28% upside) its level of $64 on February 9, 2022 (pre-inflation shock high), and seems undervalued. BNY Mellon saw its stock trading at around $42 at the end of June 2022, just before the Fed started increasing rates, and is trading 20% above that level now.

Rising Only Half The S&P's Gain In 2023, Where Is BNY Mellon Stock Headed?

LAKE MARY, Fla. , Dec. 12, 2023 /PRNewswire/ -- BNY Mellon (NYSE:BK) today announced it's investing significantly in its real estate footprint in Lake Mary, Florida, naming it a key location for the firm's growth.

BNY Mellon to Expand Presence in Lake Mary, FL

Bank of New York Mellon is downgraded to a Buy rating from a prior Strong Buy in August, in line with current consensus from Wall Street. Positive points are +3% dividend yield, dividend income growth, equity and earnings improvement, growth in AUM/AUC and inflows. Headwinds are a share price now 11% above its moving average.

Bank of New York Mellon: Still A Buy At +3% Yield And Earnings Growth (Ratings Downgrade)

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The chief executives of big U.S. banks are arguing that banking regulations aimed at strengthening the country's financial system will instead hurt the economy.

Mortgages and small loans will be more expensive under proposed regulations, bank chiefs say

Abu Dhabi based company will meet the growing needs of wealth and asset managers in the Middle East for an end-to-end wealth management platform BNY Mellon will provide its global expertise in wealth technology and has a minority share in the company ABU DHABI, UAE and NEW YORK , Nov. 21, 2023 /PRNewswire/ -- Lunate, a global alternative investment management company with more than $50 billion of assets under management, and BNY Mellon (NYSE:BK), the world's largest custodian and a leader in wealth management technology are investing in a new company, Alpheya, that will develop a customized wealth management technology platform for wealth and asset managers in the Middle East and North Africa (MENA). Based in the Abu Dhabi Global Market (ADGM), Alpheya will be funded with a capital commitment of $300 million and is expected to start serving clients in 2024.

Lunate and BNY Mellon to Invest in New Wealth Technology Company

NEW YORK , Nov. 17, 2023 /PRNewswire/ -- The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today announced that it will redeem all outstanding shares of its Series D Noncumulative Perpetual Preferred Stock (the "Series D Preferred Stock") and all of the corresponding depositary shares ("Depositary Shares"), each representing a 1/100th interest in a share of the Series D Preferred Stock. There are currently 5,000 shares of Series D Preferred Stock and 500,000 Depositary Shares outstanding.

BNY Mellon Announces Redemption of 500,000 Depositary Shares, Each Representing a 1/100th Interest in a Share of its Series D Noncumulative Perpetual Preferred Stock

The Bank of New York Mellon Corporation (BK) reported earnings 30 days ago. What's next for the stock?

The Bank of New York Mellon Corporation (BK) Up 7.9% Since Last Earnings Report: Can It Continue?

NEW YORK , Nov. 13, 2023 /PRNewswire/ -- BNY Mellon (NYSE: BK) will report financial results for the fourth quarter 2023 on Friday, January 12, 2024. Materials will be posted to BNY Mellon's website at approximately 6:30 a.m.

BNY Mellon to Report Fourth Quarter 2023 Results on January 12, 2024

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BNY Mellon is settling trades of Treasury securities manually with the Industrial and Commercial Bank of China after the Chinese bank was hacked, two sources familiar with the matter said on Friday.

BNY keeps ICBC off Treasury platform, waits for all-clear -sources

NEW YORK , Nov. 8, 2023 /PRNewswire/ -- BNY Mellon (NYSE: BK) today announced that Dermot McDonogh, Chief Financial Officer, will speak at the Goldman Sachs Financial Services Conference in New York at 9:20 a.m. ET on Wednesday, December 6, 2023.

BNY Mellon to Speak at the Goldman Sachs Financial Services Conference

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Here's Why The Bank of New York Mellon Corporation (BK) is a Strong Value Stock

NEW YORK , Oct. 25, 2023 /PRNewswire/ -- BNY Mellon (NYSE: BK) today announced that Emily Portney, Global Head of Asset Servicing, will speak at the BancAnalysts Association of Boston Conference in Boston at 8:15 a.m. ET on Friday, November 3, 2023.

BNY Mellon to Speak at the BancAnalysts Association of Boston Conference

BNY Mellon has introduced a foreign exchange (FX) platform that lets clients execute transactions across portfolios. Universal FX, announced Wednesday (Oct. 25), follows the bank's earlier debut of its OneFX solutions suite.

BNY Mellon Debuts ‘Universal' Foreign Exchange Platform

New platform helps clients manage and centralize their portfolios , regardless of where they custody, prime or settle trades  Builds on OneFX suite of solutions and banking capabilities for all FX trading, hedging and cross-border payment activities  NEW YORK , Oct. 25, 2023 /PRNewswire/ -- BNY Mellon (NYSE: BK) announced today the launch of Universal FX, a new foreign exchange (FX) platform that meets client needs to manage execution across their entire portfolio and access market-leading price transparency. Universal FX supports BNY Mellon clients across all market segments, such as investment managers, corporates, hedge funds and wealth managers, as well as helping them navigate the industry transition to T+1 settlement.

BNY Mellon Launches Universal FX

BNY Mellon has introduced a White Labeling service for its LiquidityDirect platform. This service enables financial institutions to offer their clients liquidity management solutions, including short-term investments, the bank said in a Monday (Oct. 23) press release.

BNY Mellon Launches White Labeling Service for Liquidity Management Solutions

Morgan Stanley Investment Management to be first adopter NEW YORK , Oct. 23, 2023 /PRNewswire/ -- BNY Mellon (NYSE: BK) announced today the launch of LiquidityDirect's new White Labeling service offering, providing financial institutions a liquidity management solution for their end clients. Financial institutions seeking to include short-term investments in their suite of offerings can now leverage LiquidityDirect's technology and services to provide a seamless user experience through a single sign-on for their clients.

BNY Mellon Launches White Labeling Service for LiquidityDirect® Platform

BNY reported earnings today and they have a total revenue growth of only 2% over the prior year. The upfront dividend yield is 4% but the growth prospects are lacking. The Wealth Management division experienced a 4% reduction in revenue YoY.

Bank of New York Mellon: Underperformance, But Nice Dividend

The investment bank beat estimates on the top and bottom lines. Average loans and deposits fell from the quarter a year ago.

Why Bank of New York Mellon Stock Dropped and Then Popped Today

The Bank of New York Mellon Corporation (NYSE:BK ) Q3 2023 Earnings Call Transcript October 17, 2023 10:30 AM ET Company Participants Marius Merz - Head of Investor Relations Robin Vince - President and Chief Executive Officer Dermot McDonogh - Chief Financial Officer Conference Call Participants Steven Chubak - Wolfe Research Ebrahim Poonawala - Bank of America Securities Kenneth Usdin - Jefferies Mike Mayo - Wells Fargo Securities Alex Blostein - Goldman Sachs Brennan Hawken - UBS Rob Wildhack - Autonomous Research Gerard Cassidy - RBC Capital Markets Brian Bedell - Deutsche Bank Glenn Schorr - Evercore ISI Rajiv Bhatia - Morningstar James Mitchell - Seaport Global Operator Good morning, and welcome to the 2023 Third Quarter Earnings Conference Call hosted by BNY Mellon. At this time, all participants are in a listen-only mode.

The Bank of New York Mellon Corporation (BK) Q3 2023 Earnings Call Transcript

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News for Bank of New York Mellon Stock (BK)