Founded in 2007, Bank of New York Mellon (BK) is the culmination of a merger of two of America’s most venerable banks. The Bank of New York was founded in 1784, Mellon Financial in 1869. The former was primarily a short-term business lender, the latter a wealth management firm. The resultant firm services more assets than any company on Earth, a total of $44 trillion under custody as of Dec. 31, 2022.
With $1.9 trillion of assets under management at the end of Q2 2023, Bank of New York Mellon is one of the largest asset managers in the world. The company primarily generates revenue through one of its three primary businesses: Securities Services, Market and Wealth Services, and Investment and Wealth Management. Each of these segments is discussed more in depth below.
Key Takeaways
- Bank of New York Mellon generates revenue through investment services, as well as wealth and asset management.
- The bank had $44 trillion in assets under custody as of the end of 2022.
- Bank of New York Mellon's Securities Services department offers critical financial services to institutional clients including asset servicing, clearing, settlement, fund accounting, and securities lending.
- Bank of New York Mellon's Market and Wealth Services department offers services across three channels: Pershing, Treasury Services, and Clearance/Collateral Management..
- Bank of New York Mellon's Investment and Wealth segment is broken into two different channels.
:max_bytes(150000):strip_icc()/BNY-d247d46a16c34a6980775d675cac67f6.png "How Bank of New York Mellon Makes Money (1)")
Bank of New York Mellon's Securities Services Segment
Bank of New York Mellon's Securities Services department provides a range of essential financial services to institutional clients. These services primarily revolve around the custody and administration of securities. BNY Mellon acts as a custodian, safeguarding clients' financial assets such as stocks and bonds while also offering asset servicing, clearing and settlement, fund accounting, and securities lending.
The Securities Services business segment of BNY Mellon consists of two distinct lines of business: Asset Servicing and Issuer Services, both catering to global asset owner and asset manager clients.
The Asset Servicing business offers a comprehensive suite of solutions including global custody, front-to-back outsourcing, fund accounting services, exchange-traded funds (ETFs) servicing, transfer agency, foreign exchange services, and securities lending and financing solutions. They also provide liquidity services and fund research through a portal for institutional clients.
The Issuer Services business encompasses Corporate Trust and Depositary Receipts. The Corporate Trust business delivers various issuer and investor services such as trustee, fiduciary, escrow, and other financial services. The Depositary Receipts business facilitates global investing by offering services that enable cross-border trading, clearing, settlement, and ownership enhancement.
As of the end of 2022, BNY Mellon partnered with companies from over 50 countries, making it one of the largest providers of depositary receipt services worldwide.
Securities Services Segment Earnings
In Q2 2023, BNY Mellon's Securities Services segment experienced an increase of 12%. Income before taxes increased 92% while reporting pre-tax operating margin of 29%. More specific financial highlights include:
- Average loans and deposits both increased by 3% compared to the previous quarter.
- Asset servicing generated $991 million in fees, a 5% increase from the previous quarter and roughly the same as the same quarter in the previous year.
- Issuer services earned $319 million in fees, showing a 35% increase compared to the previous quarter and a 3% increase from the same quarter in the previous year.
- Foreign exchange revenue was $124 million, down 11% from the previous quarter and 20% from the same quarter in the previous year.
- Net interest revenue amounted to $668 million, remaining stable compared to the previous quarter but up 46% from the same quarter in the previous year.
- The pre-tax operating margin improved to 29%, compared to 26% in the previous quarter and 17% in the same quarter in the previous year.
BNY Mellon was established (as Bank of New York) in 1784 by Alexander Hamilton and later became the first company to be listed on the New York Stock Exchange.
Bank of New York Mellon's Market and Wealth Services Segment
The Market and Wealth Services business segment of BNY Mellon comprises three distinct lines of business: Pershing, Treasury Services, and Clearance and Collateral Management. This segment provides business services and technology solutions to a diverse range of entities including financial institutions, corporations, foundations, endowments, public funds, and government agencies. More information on each distinct line of business is below.
Pershing
Pershing offers execution, clearing, custody, and comprehensive business and technology solutions. It plays a vital role in delivering operational support to broker-dealers, wealth managers, and registered investment advisors on a global scale.
Treasury Services
BNY Mellon's Treasury Services business is a leading provider of global payments, liquidity management, and trade finance services. It serves a wide range of clients including financial institutions, corporations, and the public sector, helping them efficiently manage their financial operations from the context of daily cashflow needs, payment facilitation, and operational Treasury demands.
Clearance and Collateral Management
This business line specializes in clearing and settling equity and fixed-income transactions on a global scale. It also serves as a custodian for tri-party repo collateral worldwide. BNY Mellon is a primary provider of U.S. government securities clearance and provides clearance services for non-U.S. government securities.
Market and Wealth Services Segment Earnings
In Q2 2023, BNY Mellon's Market and Wealth Services segment reported a total revenue increase of 10%. Income before taxes increased 8%, and the segment reported pre-tax operating margin of 46%. Detailed financial highlights include:
- Investment services fees were $933 million, showing a 1% increase from the previous quarter and a 4% increase from the same quarter in the previous year.
- Foreign exchange revenue reached $21 million, reflecting a 17% increase compared to the previous quarter but a 5% decrease from the same quarter in the previous year.
- Other fees totaled $55 million, with a 2% increase from the previous quarter and a substantial 20% increase from the same quarter in the previous year.
- Total revenue for the Market and Wealth Services segment was $1,445 million, representing a 1% decrease from the previous quarter but a significant 10% increase from the same quarter in the previous year.
The Bank of New York and Mellon Financial Corporation merged in July of 2007, resulting in the bank's current form and name.
Bank of New York Mellon's Investment and Wealth Management Segment
The Investment and Wealth Management business segment of BNY Mellon comprises two distinct lines of business: Investment Management and Wealth Management, collectively managing approximately $1.8 trillion in assets as of Dec. 31, 2022. The company's AUM had slightly increased to $1.9 trillion as of Q2 2023.
Investment Management
BNY Mellon Investment Management is a leading global asset manager consisting of several specialist investment firms and a global distribution network. Each of these firms has its own unique culture, investment philosophy, and proprietary investment process. They offer a diverse portfolio of investment strategies across major asset classes including equity, fixed income, alternative investments, and liability-driven investments.
Additionally, the Investment Management arm provides passive products and cash management services. Notable majority-owned investment firms include ARX, Dreyfus, Insight Investment, Mellon, Newton Investment Management, and Walter Scott.
Wealth Management
BNY Mellon Wealth Management encompasses investment management, custody, wealth and estate planning, private banking, investment servicing, and information management. With over $269 billion in client assets at the end of 2022, it serves individuals, families, family offices, charitable gift programs, endowments, and foundations.
The performance of the Investment and Wealth Management segment is influenced by factors such as assets under management levels, net asset flows, market conditions, and fee structures. The firm's net interest revenue is driven by loan and deposit volumes and interest rate spreads. Expenses in this segment are primarily related to staff and distribution and servicing expenses.
Investment and Wealth Management Segment
In Q2 2023, BNY Mellon's Investment and Wealth Management segment underperformed with total revenue decreasing 10%. Income before taxes decreased 38%, and the segment reported a pre-tax operating margin of just 16%. More specific financial information includes:
- Investment management fees remained relatively stable at $750 million in the second quarter of 2023, compared to $752 million in the previous quarter. However, they decreased by 9% compared to the second quarter of 2022.
- Performance fees were $10 million in the second quarter of 2023, a significant decrease from $22 million in the previous quarter but a notable improvement from $5 million in the second quarter of 2022.
- Net interest revenue was $39 million in the second quarter of 2023, down by 13% compared to $45 million in the previous quarter and a substantial 37% decrease from the second quarter of 2022.
- Noninterest expense was $677 million in the second quarter of 2023, showing an 8% decrease from the previous quarter but a 2% increase from the second quarter of 2022.
What Is BNY Mellon's Core Business?
BNY Mellon's core business encompasses a diverse range of financial services. This includes investment management, where they oversee and invest assets on behalf of institutional and individual clients. Additionally, wealth management services are provided, focusing on private banking, estate planning, and wealth preservation.
Who Are BNY Mellon's Key Competitors?
BNY Mellon competes with other major financial institutions and banks, including JPMorgan Chase, State Street Corporation, Citigroup, and several others. These institutions operate in similar financial service sectors and are competitors in the global financial marketplace, often attracting the business of large corporations and institutional investors.
What Is BNY Mellon's AUM?
As of Q2 2023, BNY Mellon's AUM was $1.9 trillion, down about 2%.
:max_bytes(150000):strip_icc()/how-bank-new-york-mellon-makes-money-bny.asp-V1-026f9a131dd34ec4b235a84901c964e3.jpg "How Bank of New York Mellon Makes Money (2)")
The Bottom Line
BNY Mellon deploys services in three different segments: Securities Services, Market and Wealth Services, and Investment and Wealth Management. Across these three segments, BNY Mellon deploy a very diverse set of financial services related to securities, asset management, and wealth planning.
