The financial crisis reminded everyone just how fragile the financial system can be during times of stress. Yet while most of the attention during the crisis focused on well-known banking institutions with a substantial retail-banking presence, The Bank of New York Mellon Corporation (NYSE:BK) actually plays a key role in maintaining the health of the entire global financial system. That makes BNY Mellon stock arguably the purest play on the state of global finance. Let’s take a closer look at this little-known financial institution to see what’s behind its recent success.
What BNY Mellon does
The reason so few people know about The Bank of New York Mellon Corporation (NYSE:BK) is that it doesn’t act like an ordinary bank. The financial institution doesn’t offer retail customers traditional banking services like deposit accounts or mortgage loans. Rather, it serves the banks and other financial institutions that do work directly with individual and corporate banking and investment customers, acting as the world’s top custodian of financial assets.
That business model worked quite well for BNY Mellon during the financial crisis, as the bank didn’t have to worry about direct exposure to bad assets on its balance sheet or liabilities from mishandling foreclosures and other collection activity. Because the company relies on its big-bank customers for its own revenue, The Bank of New York Mellon Corporation (NYSE:BK) stock wasn’t immune to the big drop in the stock market during 2008 and early 2009, but it didn’t suffer nearly the damage that many of the hardest-hit banks did.
How BNY Mellon has fared recently
BNY Mellon has navigated changing conditions in the financial industry fairly well lately. In its most recent quarter, the company suffered a net loss, due entirely to a charge of more than $850 million related to disallowed foreign-tax credits in a Tax Court decision that it hopes to have reversed on appeal. Yet The Bank of New York Mellon Corporation (NYSE:BK) benefitted from the rise in global stock markets, with management and performance fees up 10%, and servicing fees rising 3%.
The best news BNY Mellon got recently came from the Fed, when it gave the bank a passing grade on its stress tests in March. Again, given the bank’s distinct business model, The Bank of New York Mellon Corporation (NYSE:BK) saw almost no deterioration in its capital ratios even under the stress-scenario the Fed ran, and those ratios already ranked among the highest of the 18 banks that had to take the tests.