Morningstar DBRS Confirms The Bank of New York Mellon Corporation at AA; Trend Stable

DBRS, Inc. (Morningstar DBRS) confirmed the ratings of The Bank of New York Mellon Corporation (BNY or the Company), including the Company's Long-Term Issuer Rating of AA. At the same time, Morningstar DBRS confirmed the ratings of its primary banking subsidiary, The Bank of New York Mellon (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA (high), while its Support Assessment remains SA1. The Company's Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings and Stable trend reflect BNY's business model diversification and scale, its consistent delivery of predictable and favorable results, as well as its low-risk and well-managed balance sheet. Morningstar DBRS views BNY's franchise as having the broadest, deepest global product reach of the custody banks. The Company typically performs well in times of stress, as evidenced by its results during the COVID-19 pandemic, and even benefits from a deposit flight to quality, which helps augment an already very liquid balance sheet.

Consistent with our assessment of all trust banks, the credit ratings consider the operational, technological, and reputational risks associated with operating globally across numerous regulatory jurisdictions. The shifting interest rate outlook and relatively recent senior management changes are also taken into consideration.

CREDIT RATING DRIVERS
Given BNY's very high credit rating level, a credit ratings upgrade is unlikely. Conversely, sustained negative operating leverage, and / or missteps in managing operational and / or reputational risk that negatively impacts franchise strength would result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Very Strong

BNY's franchise includes dominant and/or top-tier global positions in highly defensible businesses. As of 2Q24, the Company is the largest custodian worldwide, with $49.5 trillion in assets under custody and/or administration (AUC/A), and a top 15 asset manager globally, with $2.0 trillion in assets under management (AUM). The Company is also the primary provider of U.S. government securities clearance and a leading provider of tri-party repo collateral management services globally. Morningstar DBRS views these businesses as highly sustainable, as the largest custodial banks operate in an oligopolistic industry structure, considering their significant barriers to entry, and that many of the related activities are critical to the functioning of financial markets, regardless of the business cycle stage. BNY's high credit ratings also reflect its scale and financial strength, which affords the Company room to innovate and lead the development of next generation products and services.

Earnings Combined Building Block (BB) Assessment: Strong/ Good
BNY benefits from a fee-based business model that is relatively stable and predictable. In 2023, approximately 75% of total revenues were fee-based, with the remainder coming from spread income. In 2Q24, BNY's net income (applicable to common shareholders) of $1.1 billion was up 10% from the prior year, representing a return on common equity of 12.7%. Results reflected higher investment services fees and lower expenses, partially offset by lower net interest income that was primarily driven by changes in balance sheet mix.

Risk Combined Building Block (BB) Assessment: Very Strong
We view BNY's risk profile as very strong, considering that its balance sheet is generally less risky than most financial institutions, but recognize the significant operational and reputational risks the Company faces given its important role in the global financial markets. These risks increase with the growth of scale and business complexity, and include cybercrime, data security and integrity, anti-money laundering (AML), and compliance with sanctions terms throughout its global network. Credit risk remains minimal, as the Company primarily targets investment grade companies or high net worth individuals. At the end of 2Q24, loan balances represented just 16% of total assets, with the highest exposure to margin loans, which are well collateralized.

Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong
The Company's funding and liquidity remain very strong. BNY's deposit base is diversified by business and geography, and Morningstar DBRS views deposits generated by its Asset Servicing, Treasury Services, and Corporate Trust operations as providing significant levels of stickier, operational deposits (which accounted for approximately two-thirds of total deposits). The Company also manages its balance sheet conservatively, with the majority of its assets in central bank cash and high quality liquid assets (HQLAs).

Capitalization Combined Building Block (BB) Assessment: Strong
BNY manages capital conservatively and generates resilient earnings. At the end of 2Q24, the Company's CET1 and Tier 1 Leverage ratios were at 11.4% and 5.8%, respectively, both comfortably above regulatory requirements. BNY has consistently performed in line with its low-risk business model in the CCAR process, and was assigned a SCB of 2.5% during the most recent cycle, the lowest possible level. Meanwhile, BNY has also been assigned a relatively low GSIB buffer of 1.5%, which reflects the Company's leading global position in the trust and custody services industry. Although the Company was more cautious with its payout ratio in 2022, it restarted common stock repurchases in 2023 and is targeting a total payout ratio of 100% or more in 2024.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/439999.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August, 13, 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024) https://dbrs.morningstar.com/research/433881. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at:
https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for this credit rating include Morningstar, Inc. and company documents. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

The last credit rating action on this issuer took place on October 3, 2023 when all the credit ratings were confirmed.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Eric Chan, Vice President - Global FIG
Rating Committee Chair: Michael McTamney, Senior Vice President - Global FIG
Initial Rating Date: 2 July 2007

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.

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