Bank of New York Mellon (NYSE:BK) may be the leader in the global custody banking industry by a good margin, but when it comes to growth in the size of its assets under custody (AUC), things haven’t really looked too good in the recent past. The custodian’s asset base has largely remained stagnant since early last year, growing by about $600 billion over the period when its three biggest competitors, JPMorgan Chase (NYSE:JPM), State Street (NYSE:STT) and Citigroup (NYSE:C) roped in between $1 trillion and $1.6 trillion in net new assets.
The figures for Q1 2013 are particularly indicative of slowing growth for BNY Mellon as the AUC figures were flat compared to the previous quarter despite the fact that global markets saw an uptick over the period, something that should have automatically translated to a strong growth in the value of the assets as it did for the other players. It looks like BNY Mellon really needs to get its house in order and might even need to look at ways of growing its custody business inorganically like Citigroup, which is looking to increase its European presence by acquiring ING’s custody business in the region.
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The table below summarizes the size of assets under custody for each of the four biggest custody banks at the end of each quarter since the first quarter of 2011. The data has been compiled using figures reported by the individual banks as part of their quarterly announcements.
|(in $ billions)||Q1’11||Q2’11||Q3’11||Q4’11||Q1’12||Q2’12||Q3’12||Q4’12||Q1’13|
Before we compare the numbers provided in the table below, there is something that needs to be clarified. Unlike the other three banks, BNY Mellon adds up the total size of its assets under custody (AUC) and assets under administration (AUA), to report a single “assets under custody and administration” (AUC/A) figure each quarter. To facilitate a side-by-side comparison, we have assumed that BNY Mellon’s AUA value remained at the current figure of $3.6 trillion over the last two years, and deducted this number from the reported figure to arrive at the bank’s AUC. 
Also, as a part of its annual report for 2012, BNY Mellon restated its assets under custody figures since Q1 2012, to eliminate a double-counting error that was inflating reported numbers by as much as $700 billion for some quarters. Changes related to this restatement have also been incorporated in this table.
As can be seen from the table, BNY Mellon has a decent $3.4 trillion lead over its closest competitor. But the $22.7 trillion in custody assets at the end of Q1 2013, is actually a tad lower than the value in Q3 2012 and just $600 billion more than the figure for the same quarter last year, implying an annual growth of 2.7%. In sharp contrast, the size of assets under custody grew 8% for JPMorgan, 10% for State Street and 8% for Citigroup, over the same period.
The disparity in growth of AUC for the first three months of the year for BNY Mellon also stands out, with the increased asset valuations from improving economic conditions not helping raise the size of assets. More so, given the bank reported net new wins of $200 billion in assets this quarter. While currency translation losses could be contributing in a big way towards the stagnant AUC figures, the underlying reason could be increased outflows in BNY Mellon’s business – a serious concern for the custodian if it were the actual scenario. After all, the custody banking business contributes to nearly a third of BNY Mellon’s share value, and a slowdown in growth of AUC presents a significant downside to its share price, as can be understood by making changes to the chart below.Notes: