How Bank of New York Mellon Makes Money (BNY) (BK)

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 $33.3 trillion under custody. With $1.9 trillion under management, Bank of New York Mellon is the 5^th-largest asset manager in the world.

For Investors Large and Small

True to the history of its predecessors, Bank of New York Mellon has two distinct reporting segments: investment management and investment services. This can be confusing: the former falls under one subsidiary, named The Bank of New York Mellon. Meanwhile, the company’s wealth management business falls under a subsidiary named BNY Mellon. (For related reading, see: Wealth Management: How Billionaires Handle Their Fortunes.)

Smaller subsidiaries, most of them concentrating on trusts, include BNY Mellon Investment Servicing Trust Company; BNY Mellon Trust Company of Illinois; BNY Mellon Trust of Delaware; and The Bank of New York Mellon Trust Company. (For related reading, see: The Future of Mobile Banking.)

No one has ever accused Bank of New York Mellon management of being overly creative when naming its subsidiaries. Which include the firm’s main European operation, The Bank of New York Mellon SA/NV. The company has 46 subsidiaries in total, all of but two them incorporated either in the United States or the British Isles. (The outliers are based in Belgium and Luxembourg.) All told, Bank of New York Mellon operates in 35 countries. (For related reading, see: BNY Mellon Looking Much Better.)

Too Big To Worry About Failing

Throughout Bank of New York Mellon’s brief existence, earnings have been uncommonly consistent. Over the last five years, in reverse chronological order, the firm has earned profits of $3.5, $3.6 billion, $3.8 billion, $3.4 billion, and $3.7 billion. Shareholders’ equity currently sits at $37 billion as of the end of Q4 2017. (For related reading, see: Case Study: The Collapse of Lehman Brothers and Dissecting Bear Stearns' Collapse.)

Few Seats at the Table

Of Bank of New York Mellon’s two major businesses, investment services is the biggest, accounting for 89% of the company’s noninterest expense. If you happen to be the executive tasked with figuring out what to do with your large company’s cash pile, chances are good that you’re going to contact Bank of New York Mellon at some point. The firm does business with approximately 400 of its counterparts on the Fortune 500 list, along with three-quarters of America’s 100 largest foundations and two-thirds of its 1,000 largest pension funds. Hence the enormous amount of money under Bank of New York Mellon’s administration. (For more, see: The Banking System: Commercial Banks Make Money.)

While Bank of New York Mellon indeed deals in the exclusive province of wealth beyond most people’s comprehension, that’s not the firm’s specialty. Rather, hundreds of thousands of middle-class people rely on Bank of New York Mellon’s investment services expertise to keep their retirement plans solvent and their stock investments promising. (For related reading, see: Midlife Retirement Planning Guide.)

The $276 million of company income before taxes accounted for by investment management operations are nothing to dismiss, either. The segment includes estate planning and private banking for extremely rich people. (Which, again, is small compared to the investment services Bank of New York Mellon sells to the managers of large capital reserves. The indirect beneficiaries of those investment services – ordinary employees and retirees – have a far greater impact on Bank of New York Mellon’s fortunes than do the firm’s necessarily fewer wealthy clients.)

The remainder of the firm’s investment management operations include global equities, currency management, and fixed income strategies. Bank of New York Mellon’s investment management is conducted through many (relatively) small and independently marketed subsidiaries, such as Alcentra, Siguler Guff and more, the majority of which were bought by Bank of New York Mellon (or one of its predecessors) rather than being created in-house. The firm’s acquisitiveness hasn’t subsided, either. 2015 saw the purchase of Cutwater Asset Management, a company with $23 billion under management, which is small enough for a giant like Bank of New York Mellon to re-brand it as a “boutique” investment concern, absorbed and re-branded under its Insight Investment mark.