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Investment Overview for BNY Mellon (NYSE:BK)
Below are key drivers of BNY Mellon's value that present opportunities for upside or downside to the current Trefis price estimate for BNY Mellon:
- Servicing Fee as a % of Assets under Custody: BNY Mellon's stock is highly sensitive to this driver primarily because the firm has huge amount of Assets under Custody ($26.7 trillion at 2012 end). Historically servicing fees has varied as a percentage of assets under custody, but the range has been pretty limited, from 0.010% to 0.013%. We currently forecast the asset servicing fees to remain constant as a percentage of assets under custody. However, if servicing fees increase to 0.014% by the end of the Trefis forecast period there could be an upside of about 5% to the Trefis price estimate. Conversely, if competition forces fees down and they decline to 0.01% of assets under custody, there could be a 4% downside.
- BNY Mellon's Assets under Custody: We currently forecast BNY Mellon's AuC will increase from $26.7 trillion in 2012 to almost $40 trillion by the end of our forecast period. However, if market valuations improve and the company is also able to attract significant fund inflows then AuC could increase to $50 trillion by the end of the Trefis forecast period. This would result in a 4% upside to our price estimate. Similarly a slower growth due to slower than expected economic recovery may lead to a downside to our estimate.
Asset & Wealth Management
- BNY Mellon's Assets under Management: We currently estimate that BNY Mellon's AuM will increase from $1.4 trillion in 2012 to almost $2 trillion at the end of our forecast period driven largely by improved valuations and inflows of funds from emerging markets. However, a much slower growth to only $1.5 trillion would result in a downside of 5% to the Trefis price estimate for BNY Mellon. Such a scenario can come into play as more and more investors invest through online brokerages.
For additional details, select a driver above or select a division from the interactive Trefis split for BNY Mellon at the top of the page.
The Bank of New York Mellon Corporation provides investment servicing and investment management services to institutional investors around the world. It is the world's largest custodian bank by assets. BNY Mellon's customers include mutual funds, collective investment funds, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers.
Investment servicing includes asset servicing, issuer services and clearing services, while investment management refers to providing advisory services for investing and managing financial investments on behalf of clients.
- Worldwide growth in demand for asset management services
- Global Assets under Management (AuM) were estimated to be around $85 trillion at the end of 2012. 34 markets constitute over 95% of the Assets under Management, which indicates negligible presence in most markets with concentration in the developed economies such as U.S., U.K., Western Europe, Japan, Australia etc.
- Global Assets under Management increased at 12% annually in 2002-07 and rose by 12% & 8% in 2009 & 2010 respectively following an 18% decline in 2008. In 2010, Latin America registered the largest increase in AuM with 18% growth followed by 8% in the US and 7% in Europe.
- Strength in Global Asset Management Industry
- As of end-2012, the size of Assets under Custody globally was more than $125 trillion with BNY Mellon being the industry leader at $27 trillion, State Street at $24 trillion the second largest player and JPMorgan following at $19 trillion.
Trends in Investment Servicing Industry
Global custodians are entrusted with the safekeeping and processing of large volumes of securities. The rapid growth in Assets under Custody in recent years is likely to continue well into the future due to :
- Greater role of global custodians on account of cross-border investments and more complex assets
Growth in mutual funds and private pension plan providers
- Investors increasingly invest in cross-border assets, in emerging markets and in more complex (structured) financial instruments which would require the presence of large global custodians and not local/regional players or financial service providers' in-house investment servicing team.
Trends in the Investment Management Industry
- Changes in Asset Management Fee Structure
- The recent financial crisis has resulted in more transparency in the pricing of asset management services. As a result performance fees (which now looks at a longer investment horizon than before) have increased as a proportion of total fees while the advisory fee (simply charged as a percentage of AuM) is facing downward pressures for most asset classes.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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