VALUATION HIGHLIGHTS

1. Market and Wealth Services constitute 48% of the Trefis price estimate for Bank of New York Mellon's stock.
2. Securities Services constitute 41% of the Trefis price estimate for Bank of New York Mellon's stock.
3. Investment Management constitutes 10% of the Trefis price estimate for Bank of New York Mellon's stock.

WHAT HAS CHANGED?

Latest Earning

In Q1 2025, BNY reported earnings of $1.58 per share, up 26% year-over-year. Total revenue rose 6% year over year to $4.8 billion. Earnings have benefited from a rise in fee revenues and net interest income (NII).

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of BNY's value that present opportunities for upside or downside to the current Trefis price estimate for BNY:

Asset Servicing

• Servicing Fee as a % of Assets under Custody: BNY stock is highly sensitive to this driver primarily because the firm has massive Assets under Custody. Historically, servicing fees have varied as a percentage of assets under custody, but the range has been pretty limited. The metric stood at 0.084% in 2024. We currently forecast the asset servicing fees to remain at the current levels in the coming years.
• BNY Assets under Custody: We currently forecast BNY AUC will increase from $49 trillion in 2024 to around $57 trillion by the end of our forecast period. However, if market valuations improve and the company is also able to attract significant fund inflows, then AuC could grow to almost $65 trillion by the end of the Trefis forecast period. This would result in a 2% upside to our price estimate.

Asset & Wealth Management

• BNY's Assets under Management: We currently estimate that BNY's AuM will increase from $2 trillion in 2024 to around $2.3 trillion at the end of our forecast period, driven largely by improved valuations and inflows of funds from emerging markets. However, if the figure hovers around the current number throughout the Trefis forecast period, it would result in a downside of 3% to the Trefis price estimate for BNY. Such a scenario can come into play as more and more investors invest through online brokerages.

BUSINESS SUMMARY

BNY Mellon provides investment servicing and investment management services to institutional investors worldwide. As one of the largest custodian banks in terms of assets, the company caters to mutual funds, retirement plans, insurance companies, foundations, endowments, and investment managers.Its investment servicing includes securities services and market & wealth services, while investment management focuses on advisory and asset management.BNY Mellon's key competitors in custody and investment services include State Street, JPMorgan Chase, and Northern Trust, while it competes with BlackRock in the asset management space.

SOURCES OF VALUE

• Complementary Investment Servicing and Investment Management businesses allow competitive fees
• Since BNY has an in-house investment servicing business, it can offer investment management services at lower advisory fees. Most asset managers have to outsource trading and execution functions to other custodian banks. They are forced to charge higher fees to compensate for the costs associated with custody, trading, and executing transactions.
• Additionally, BNY's Investment Servicing business helps it attract institutional clients, to whom it can provide advisory services in addition to the custody of financial securities.
• Size and scale of operations
• BNY is the world's largest custodian of assets, with assets under custody and administration of more than $50 trillion. It manages assets worth over $2 trillion and is present in over 100 markets across 35 countries.
• BNY benefits from economies of scale, which enable it to dilute operating costs (those associated with people and technology setup) over a larger asset pool and investor base, thereby improving operating margins.

KEY TRENDS

Trends in the Investment Servicing Industry:

Global custodians are entrusted with the safekeeping and processing of large volumes of securities. The rapid growth in Assets under Custody over recent years is likely to continue well into the future due to:

1. Greater role of global custodians on account of cross-border investments and more complex assets
• Investors increasingly invest in cross-border assets, emerging markets, and more complex (structured) financial instruments that would require the presence of large global custodians and not local/regional players or financial service providers' in-house investment servicing teams.
2. Growth in mutual funds and private pension plan providers
• In many countries and mainly in emerging economies, the state is withdrawing from its role as a primary pension provider, causing people to invest in defined-contribution pension plans and mutual funds. Since custody providers serve institutional investors such as mutual and pension funds, custodians exhibit promising growth prospects in terms of the size of Assets under Custody.

Trends in the Investment Management Industry:

1. Worldwide growth in demand for asset management services
• Global Assets under Management (AUM) are growing at a rapid pace. However, a shift in investor preferences towards index & ETF funds and cut-throat competition can impact the AUM growth of traditional players like BNY.
• Additionally, growing wealth in emerging markets will likely result in additional demand for asset management services (and, as a result, asset servicing).
2. Changes in Asset Management Fee Structure
• The Great Recession resulted in more transparency in the pricing of asset management services. As a result, performance fees (which now look at a longer investment horizon than before) and advisory fees (charged as a percentage of AuM) are facing downward pressures for most asset classes.