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.
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.
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.
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Leading market position across a range of businesses increases revenues and market share
Capital and liquidity strengths helping to withstand tough operating conditions
Significant geographic and business mix diversity cushions the group from volatile demand
High exposure to wealth management loans and mortgages might lead to credit losses
Revenue susceptible to capital market activity
Increasing regulatory challenges could increase compliance risks
Increases in FDIC insurance premiums and other proposed fees likely to affect margins
Consolidation in the financial services industry likely to intensify competition
Acquisitions likely to increase market share in global asset management industry
International growth likely to remain strong
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The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.