ETF Boom Likely To Help State Street Edge Ahead Of BNY Mellon In Terms Of Custody Assets

The four largest global custody banks had $106.5 trillion in assets under custody and administration (AUC/A) at the end of Q2 2017 – representing a strong 8% increase from the figure of under $99 trillion a year ago. While market leader BNY Mellon witnessed the lowest growth rate of 5.4%, second-ranked State Street saw its asset base swell by almost 12% y-o-y, helping it close in on the #1 spot globally in terms of total assets under custody and administration. We believe that State Street’s above-average growth is primarily because of the growing popularity of exchange-traded funds (ETFs) globally. As State Street is one of the top three players in this industry, and as the bank’s asset management arm relies on its own asset servicing arm for custody banking services, rapid growth in ETFs should translate to higher AUC/A figures for it going forward.

AUC/A figures for individual banks are taken from their quarterly earnings releases. While BNY Mellon reports only total AUC/A figures as a part of its quarterly earnings, JPMorgan and Citigroup exclude assets under administration (AUA) from their reporting – providing only AUC numbers. State Street details its AUC/A as well as AUC figures at the end of each quarter. The table above assumes that JPMorgan had $4.1 trillion in assets under administration in both quarters. The AUA figure for Citigroup is estimated to be $1.6 trillion.

Removing BNY Mellon’s approximately $3.5 trillion in AUA from the figures above, and using the reported AUC figures for the other banks, we estimate the market shares of these custodians as:

As the custody banking business is characterized by slim operating margins, the industry is extremely concentrated, with incumbents looking to improve profitability through acquisitions in order to achieve greater economies of scale. Notably, the four largest custody banks are all based in the U.S., and are responsible for nearly half the industry. While BNY Mellon and State Street are primarily focused on custody banking services to make money (with these services contributing 45-50% of their values, according to our estimates), JPMorgan and Citigroup have extremely diversified business models, with custody banking services being responsible for less than 5% of their valuation.

You can see how changes to BNY Mellon’s custody asset base affects our price estimate for the bank my making changes to the chart below.

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

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