COMPANY DESCRIPTION

The Bank of New York Mellon Corporation (BNYMC or 'the group') is a leading asset manager in the world. The group provides investment services in 35 countries and more than 100 markets. BNYMC has strong market position in all of its segments. The group leverages its leading position to attract and retain its clients. However, increasing regulatory challenges and FDIC premiums could hurt its profitability. 

 

ECONOMIC MOAT

In our opinion, scale and scope in serving institutional investors have helped the firm build a moat. With over $28 trillion in client assets, BK is the largest of the top three custody banks in the U.S. and a major provider of back-office services to institutional investors, which gives it the scale necessary to service customers in this technology-driven business at a competitive cost. Moreover, clients of custody banks tend to be very sticky, as clients are loath to risk the back-office disruption that switching providers could entail. 

 

OUTLOOK

A prolonged stock market rally has enabled BK to benefit from loftier asset values and the fees related to managing those investments. Meanwhile, the bank's stricter cost controls have allowed for reduced overhead and increased profitability. BK has thrived on greater borrowing activity from both new and existing clients Going forward, we anticipate BK will further wind down various derivative positions, providing the bank with more capital, fewer costs, and healthier operating margins.