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S&P Raises Bank of New York Mellon Rating One Notch To 'AA-'
NEW YORK (Standard & Poor's) June 27, 2008--Standard & Poor's Ratings Services said today that it raised its ratings on Bank of New York Mellon Corp. (BK), including the counterparty credit rating, which went to 'AA-/A-1+' from 'A+/A-1'. Standard & Poor's also said that it raised its ratings on all of BK's related entities. The outlook is stable.
"The upgrade recognizes the company's significant progress in integrating the operations of Bank of New York Co. Inc. with those of Mellon Financial Corp. since the two companies merged on July 1, 2007," explained Standard & Poor's credit analyst Scott Sprinzen. "Over the past year, there have been virtually no significant customer defections attributable to the merger, and it seems likely that management will exceed its initial revenue and cost-cutting synergy targets."
BK now has a very strong business position. In its Institutional Services businesses, it has commanding market shares in custodial services, corporate trust, depositary receipts, stock transfer, clearing services, and global payments, so it benefits from significant economies of scale. In addition, it is among the largest investment managers in the world and has a sizeable wealth-management business.
The advantages of its market position and diversity have been evident since mid 2007, as the company has been able to maintain relatively stable core earnings despite market turmoil. Although weak investment performance has hurt the earnings of BK's asset-management business, these have been offset by the contribution of Institutional Services, which includes some businesses--such as custodial services--that benefit from increased market volatility. Although weak economic/market conditions could well dampen profitability over the next few quarters or longer, BK is well positioned to benefit over the longer term from secular growth in the global securities industry.
The outlook is now stable. The current ratings assume that for at least the next few quarters, overall financial performance could continue to be adversely affected by difficult asset-management market conditions, though mitigated by continuing strong performance of BK's institutional services businesses. Over the longer term, BK is well positioned to realize significant growth in revenue and earnings, given favorable secular industry trends and with the realization of revenue and cost benefits of the Mellon merger. The ratings also assume that BK's adjusted tangible shareholders' equity-to-assets ratio improves to approximately 5% by year end and then is maintained at least at that level.
"In the unlikely event that there are operational problems, if financial performance suffers more than we are now assuming from an economic downturn, or if the company adopts a more aggressive financial policy, we could revise the outlook to negative," Mr. Sprinzen added. "In light of the competitive challenges BK faces in its core businesses and management's financial policies, we consider a further upgrade within the next few years to be relatively unlikely."
Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Credit Ratings Search.
Primary Credit Analyst: Scott Sprinzen, New York (1) 212-438-7812;
scott_sprinzen@standardandpoors.com
Secondary Credit Analyst: Robert Hansen, CFA, New York (1) 212-438-7402;
robert_hansen@standardandpoors.com
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