Q2 2013 U.S. Banking Review: Assets Under Custody

August 29th, 2013 by Trefis Team
+16.11%
Upside
54.00
Market
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BK: Bank of New York Mellon logo
BK
Bank of New York Mellon

The Fed’s decision to taper its asset purchase program in the near future had a clear impact on the interest rate market towards the latter half of the second quarter of the year. This in turn led to a decline in the value of debt securities – something that showed through as a reduction in the size of assets held by asset managers and custodians across the globe despite the quarter being largely favorable with net inflows of assets for financial institutions offering these services.

In this article, we focus on the size of assets under custody for the world’s four largest custody banks – Bank of New York Mellon (NYSE:BK), JPMorgan Chase (NYSE:JPM), State Street (NYSE:STT) and Citigroup (NYSE:C). In case you missed the connection here, these custody banking giants are all based in the U.S. and together garner a share of at least 60% of the global custody industry.

See the full Trefis analysis for BNY Mellon | JPMorgan | State Street | Citigroup

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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 Q2’13
BNY Mellon 21,000 21,700 21,200 21,000 22,100 21,600 22,800 22,700 22,700 22,600
JPMorgan 16,619 16,945 16,250 16,870 17,868 17,665 18,219 18,835 19,294 18,929
State Street 16,692 16,789 15,714 15,863 16,912 16,387 17,287 17,806 18,588 18,881
Citigroup 13,000 13,500 12,500 12,000 12,500 12,200 12,800 13,200 13,500 13,400

There is something that needs to be clarified here, though. 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. [1]

The table clearly shows the fact that there has been a net reduction in the total size of assets under custody (AUC) as mirrored by the industry at large, with only State Street bucking the trend with a $300 billion increase in AUC for at the end of Q2 2013 compared to Q1 2013. State Street’s gain comes on the back of strong growth in insurance-related assets for the quarter.

BNY Mellon continues to maintain its strong grip on the industry with its lead over second-ranked JPMorgan growing to $3.7 trillion at the end of the second quarter compared to $3.4 trillion at the end of the first. Last quarter, we expressed concern about the disparity in growth of AUC for BNY Mellon over the first three months of the year compared to all its competitors who reported a healthy increase in asset valuations from improving economic conditions. This spelled trouble for the custodian as this 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).

But the fact that the bank’s AUC figures are now largely in line with the global trend leads us to admit that the concerns were misplaced and were likely a one-time occurrence.

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Notes:
  1. BNY Mellon Key Facts, Global Custody Website [↩]