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.

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STRENGTHS

  • 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 

WEAKNESSES

  • High exposure to wealth management loans and mortgages might lead to credit losses

  • Revenue susceptible to capital market activity 

THREATS

  • 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 

OPPORTUNITIES

  • Acquisitions likely to increase market share in global asset management industry

  • International growth likely to remain strong 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

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.

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