How Bank of New York Mellon Makes Money

Buy- and Sell-Side Customers, as Well as Wealth Management Clients

Founded in 2007, Bank of New York Mellon (BK) is the culmination of a merger of two of America’s most venerable banks. The Bank of New York was founded in 1784, Mellon Financial in 1869. The former was primarily a short-term business lender, the latter a wealth management firm. The resultant firm services more assets than any company on Earth, a total of $41.1 trillion under custody as of Dec. 31, 2020.

With $2.2 trillion of assets under management, Bank of New York Mellon is one of the largest asset managers in the world. The company primarily generates revenue through investment services, including asset and issuer servicing, treasury services, clearance and collateral management, and asset and wealth management.

Key Takeaways

  • Bank of New York Mellon generates revenue through investment services, as well as wealth and asset management.
  • The bank had $41.1 trillion in assets under custody as of the end of 2020.
  • BNY Mellon operates in 35 countries around the world.

Bank of New York Mellon's Earnings

Throughout Bank of New York Mellon’s brief existence in its current form, earnings have been uncommonly consistent. While reported revenue of $15.8 billion was down 4% in 2020 compared to 2019, management explained this was the result of the sale of an equity investment in 2019 and the impact of lower interest rates.

Over the previous five years, in reverse chronological order, the firm earned revenue of $16.5 billion (2019), $16.4 billion (2018), $15.5 billion, $15.2 billion, and $15.2 billion. According to the bank's most recent annual report, net income for 2020 was approximately $3.6 billion. As of Dec. 31, 2020, the pre-tax operating margin was 30%.

Fast Fact

BNY Mellon was established (as Bank of New York) in 1784 by Alexander Hamilton and later became the first company to be listed on the New York Stock Exchange.

Bank of New York Mellon Business Model

True to the history of its predecessors, Bank of New York Mellon has two distinct business reporting segments: investment management and investment services. This can be confusing; the former falls under one subsidiary, named The Bank of New York Mellon. Meanwhile, the company’s wealth management business falls under a subsidiary named BNY Mellon.

Smaller subsidiaries, most of them concentrating on trusts, include BNY Mellon Investment Servicing Trust Company, BNY Mellon Trust Company of Illinois, BNY Mellon Trust of Delaware, and The Bank of New York Mellon Trust Company.

Bank of New York Mellon's subsidiaries include the firm’s main European operation, The Bank of New York Mellon SA/NV. The company has dozens of subsidiaries in total, with the largest majority of them incorporated either in the United States or the British Isles. (The outliers are based in Belgium and Luxembourg.) All told, Bank of New York Mellon operates in roughly three dozen countries.

Bank of New York Mellon's Investment Services Business

Of Bank of New York Mellon’s two major businesses, Investment Services is the biggest, accounting for about 71.9% of the company’s noninterest expense. This division provides a variety of business and technology services to financial institutions, corporations, endowments, and public agencies. Within the Investment Services division, Bank of New York Mellon has a variety of lines of business, including Asset Servicing, Pershing (providing clearing, custody, and other business services), Issuer Services, Treasury Services, and Clearance and Collateral Management.

If you happen to be the executive tasked with figuring out what to do with your large company’s cash pile, chances are good that you’re going to contact Bank of New York Mellon at some point. The firm does business with approximately 400 of its counterparts on the Fortune 500 list, along with three-quarters of America’s 100 largest foundations and two-thirds of its 1,000 largest pension funds. Hence, the enormous amount of money under the Bank of New York Mellon’s administration.

Fast Fact

The Bank of New York and Mellon Financial Corporation merged in July of 2007, resulting in the bank's current form and name.

Bank of New York Mellon's Investment Management Business

While Bank of New York Mellon indeed deals in the exclusive province of wealth beyond most people’s comprehension, that’s not the firm’s specialty. Rather, hundreds of thousands of middle-class people rely on Bank of New York Mellon’s investment services expertise to keep their retirement plans solvent and their stock investments promising.

The investment management segment includes estate planning and private banking for extremely rich people. This, again, is small compared to the investment services Bank of New York Mellon sells to the managers of large capital reserves. The indirect beneficiaries of those investment services—ordinary employees and retirees—have a far greater impact on Bank of New York Mellon’s fortunes than do the firm’s necessarily fewer wealthy clients.

The remainder of the firm’s investment management operations include global equities, currency management, and fixed income strategies. Bank of New York Mellon’s investment management is conducted through many (relatively) small and independently marketed subsidiaries, such as Alcentra, Siguler Guff, and more, the majority of which were bought by Bank of New York Mellon (or one of its predecessors) rather than being created in-house. The firm’s acquisitiveness hasn’t subsided, either; it continues to buy up smaller "boutique" houses periodically.

As of the end of 2020, the Investment Management division, consisting of both Investment Management and Wealth Management lines of business, held assets under management of $2.2 trillion.

Future Plans

According to its 2020 annual report, the Bank of New York Mellon is focused on worldwide social justice movements given the global impact of the COVID-19 pandemic. The company plans on using its resources and market influence to address environmental, social, and governance (ESG) issues.

In 2020, the company issued three new enterprise ESGs with associated goals and key performance indicators (KPIs). The company has established new programs related to ESG financing, along with helping clients manage ESG risks and opportunities.

Key Challenges

Risk is an inherent part of investing and Bank of New York Mellon must adequately manage its own risk factors, as well as those of its clients. Beyond the basic unpredictability of investments, however, there are also other challenges that BNY Mellon faces. These include competition from a small but powerful group of similarly-equipped financial institutions around the world, each of which is competing for the same clients and asset pool.

Given the bank's high volume of daily transactions, it is susceptible to operational risk caused by a breakdown in the system or in information. There are also constant governmental and regulatory challenges to which the company must adapt.

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  1. The Bank of New York Mellon. "Annual Report 2020," Page 8.

  2. The Bank of New York Mellon. "Annual Report 2020," Page 3.

  3. The Bank of New York Mellon. "BNY Timeline."

  4. The Bank of New York Mellon. "Annual Report 2020," Page 6.