BNY Mellon Turns To Wealth Management Unit To Ride Out Low-Interest Tide
The Bank of New York Mellon Corporation (NYSE:BK) is looking to grow its wealth management business over the coming years in a move that looks like a natural outcome of the current low-interest rate environment that is throttling revenues from its primary custody banking business. [1] In an attempt to increase its share in the country’s highly competitive wealth management industry, BNY Mellon will boost the division’s sales force by 50% over the next two years – representing an addition of 100 new employees.
BNY Mellon’s wealth management business roped in $632 million in revenues last year, which is less than 5% of the $14.6 billion in total revenues the world’s largest custody banking giant generated in 2012. But the focus on this business is a step in the right direction as the wealth management industry provides the bank an opportunity to improve (or at least maintain) top-line figures in the current scenario where its asset servicing revenues have remained largely flat despite positive quarter-on-quarter growth in the size of its assets under custody.
We maintain a $28 price estimate for BNY Mellon’s stock which is slightly below the current market price.
See our full analysis for BNY Mellon here
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BNY Mellon’s asset & wealth management operations form its second most valuable business division (as can be seen from the chart above) and contribute to almost a quarter of its total value. For the first quarter of the year, the division reported record assets under management (AUM) figures of $1.43 trillion thanks to record inflows of $40 billion for its long-term funds.
Now this AUM figure includes assets from mutual funds, institutional clients as well as private clients, with those by private clients representing its wealth management business. Wealth management assets make up the smallest component of the $1.43 trillion in assets – about 6% to be precise. But wealth management revenues consistently contribute to nearly 20% of BNY Mellon’s total investment management fee income ($162 million of $812 million for Q1 2013). This is because fees for managing private client assets are significantly higher compared to those for institutional clients – making the wealth management business a very important part of BNY Mellon’s business model.
The significant revenue potential from the business is clearly the reason behind the bank’s decision to boost its wealth management staff over the coming years. While the bank’s total assets under management will not see a marked growth from this push, we believe there will be a notable positive impact on fee revenue for the asset & wealth management operations. You can understand how an increase in these fees impacts BNY Mellon’s share price by making changes to the chart below.
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Notes:- Bank of New York Mellon to Boost Wealth-Management Sales Force, The Wall Street Journal, May 22 2013 [↩]