Bank of NewYork Mellon Corp
Spencer Finch
Analyst

June 30, 2010
Recommendation:

Ticker

BK

Exchange

NYSE

Industry

Asset Management and
Custody Bank

Sector

Financial

Classification

Capital Appreciation

Market Cap.

US $31.39 billion

52 Week Price range

$24.90-$32.65

Recent Price

US$ 26.60

Current P/E

N/A

Projected 2012 P/E

11x

2009 EPS

-$0.95

Projected 2012 EPS

$3.00

Dividend Yield

1.4%

Debt Rating

AA-

Beta

0.7

Hold
Pros:
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Financials will be the leading industry out of the recession
Great market position to take advantage of a turn around
Poised to outperform the industry
Management synergies and commitment to keeping earnings high.

Cons:
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Extreme Complexity of Analysis
Revenues tied to performance of market
Acquisitions pose risks (Synergies may not be achieved)
Financial Regulation

Brief Overview
Established in 2007 from the merger of Mellon
Financial Corporation and The Bank of New York company, Inc., The Bank of New York Mellon is a global financial services company that helps clients manage and move their financial assets. It operates in 37 countries, providing asset management and issuer services to institutions, corporations and high-net-worth individuals. Currently the bank has
$22.3 trillion assets under custody or administration and $1.115 trillion under management. 1 In 2006, before the merger, the Bank of New York got rid of most its traditional banking services for more lucrative fee based services.2

Chart forThe Bank of New York Mellon Corporation (BK)
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Value Line
Hoovers

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ORIGINAL PURCHASE RATIONALE
The EIF purchased 1,022 shares of BK on April 30, 2003 at a cost basis of $26.53. The equity position was established following the sale of Wells Fargo, with the objective to reduce the impact of a low interest rate environment. The rationale behind the purchase of BK was as follows:  The Bank of New York focuses on businesses different from that of traditional commercial banks, considering that it has less reliance on interest rate spreads and rather focuses on fee based income sources.
 The low interest rate environment was negatively affecting commercial banks’ earnings given the increased competition for limited profits.
 BK was introduced following the sale of Wells Fargo, which depended mainly on revenue derived from mortgage related products. Given the projection of refinancing in the industry, the EIF decided to sell its position in Wells Fargo and in turn establish its position of BK 2.
A HOLD recommendation was made on September 2008 for the following reasons:
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BNY Mellon is located within 100 markets worldwide with approximately 35% of its revenues generated outside the US. This offers great opportunity for diversification with the current environment within the US.
The company provides a breadth of products and services that provide it with balance and at the same time enable it to attract new clients due to the diversity of its products.
Management forecasts revenue synergies of approximately $325 - $425 million by 2011.
Currently a significant percentage of the expense synergies has been achieved, and the company has maintained a higher customer retention rate even after the merger
The principal operational focus of the company is on fee based business. These are more stable in a volatile financial environment. Loss of fees in asset management is offset by increased spreads in the services business due to volatility 3

The most recent review of this position was conducted on March 1, 2008 with a SELL position for the following reasons:
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The margins of the company were less than par with that of its key competitors, BNY
Mellon’s low leverage position and concerns over management’s ability to improve margins led the analyst to believe the bank would struggle relative to competitors.
Although the write downs seemed sufficient, the possibility of future write downs and deterioration of BNY Mellon’s securities portfolio, ultimately