BoNY Mellon Corp. And the bad puns of the global testosterone order do not end there. Our favorite capitalist male press, um, organ The Economist keeps the macho metaphors rolling (see article below on the consensual mating of Bank of New York and Mellon Corp.)
A nice caption for this thread could be: “if you know the plumbing, you know who's running the water,” as one banker cited in the article below puts it.
Behold, the newly merged Bank of New York Mellon Corporation (BoNY Mellon Corp). Custodians of almost $17 trillion in other's assets. Such asset-protectors are called "Global Custodians." And NYC has that market cornered.
Things to note from the article:
* "Global custody" is asset-servicing, or administering. And it is going global. Shock!
* There's a chart at the link which shows that the top 8 banks handling global custody assets are handling, if you add 'em up, about 65 trillion dollars. And control over those dollars is tightening as the merger wave continues like musical chairs at an orgy. The article hints that "JPMorgan Chase or Citigroup may yet try to swallow State Street, the third-largest actor." Uh, he said "swallow." Uhuh.
* The Economist notes that Asia is "virgin territory."
* Custodians are broadening their definition of asset servicing to include short-term securities lending and those nasty derivatives contracts.
* Custodians "are courting new kinds of customers, namely—you guessed it—hedge funds and private-equity firms."
Grab a beer, read it all here...
Dec 7th 2006 | NEW YORK
From The Economist print edition
Bank of New York and Mellon shake up what is a dull business no longer
http://www.economist.com/finance/displa ... id=8381969
“NOTHING takes the taste out of peanut butter quite like unrequited love,” noted Charlie Brown. The all-American spread must taste more delectable than ever to executives at Bank of New York (BoNY). Eight years after their first attempt to woo a forerunner of Mellon Financial, a Pittsburgh-based rival, was roundly rebuffed, the two banks have fallen into each other's arms. It is hard to find anyone—except their competitors—who isn't pleased for them.
The new bank, which will go by the not-so-pithy name of The Bank of New York Mellon Corporation, will just squeak into the list of the world's top ten asset managers. More importantly, it will be the new number one in global custody (also known as asset servicing), overtaking JPMorgan Chase and cementing American dominance of that business (see chart).
Global custodians safeguard and administer securities for banks, mutual funds and other institutional investors. It is an unglamorous line of work, but an important one. It can also be lucrative: BoNY and Mellon made combined net profits of $1.88 billion from servicing others' assets in the first nine months of the year.
The benefits of financial mergers are often exaggerated, but in the case of custody scale is universally acknowledged as a good thing. Custodians handle huge sums—the new bank will keep $16.6 trillion-worth of assets—but only get to hold on to a tiny sliver and, says David Hendler at CreditSights, a research firm, must live with very tight profit margins. The only way to gain an edge is to have the best (ie, most expensive) technology and lots of customers. “It's a business of dimes and nickels, not dollars,” says one adviser to the industry, “so it pays to be the low-cost, high-volume producer.” The market clearly thinks BoNY and Mellon have grabbed that role: both banks' shares leapt after the deal was announced.
For both, it comes after years of evolution away from general banking, during which they sold their branch networks and snapped up custody-type businesses. But there are still areas where they complement each other. BoNY is bigger in asset servicing and more focused on supporting financial institutions; Mellon is stronger in fund management and looking after assets for pensions and endowments. The main risk, as ever, will be integration—though the man who will be chief executive, Mellon's boss Robert Kelly, has plenty of experience in crunching banks together.
The deal comes as the asset-servicing business is changing in various ways. First, it is going global. The American market has seen lots of consolidation (though JPMorgan Chase or Citigroup may yet try to swallow State Street, the third-largest actor). By contrast, Europe is fragmented and much of Asia is virgin territory. The big American custodians hope to do well in China. A combined BoNY Mellon would already do a quarter of its business outside America.
The second big change is the broadening of what counts as asset servicing. Storing and settling stocks and bonds is no longer enough. The industry is rushing to offer more lucrative services such as short-term securities lending. This is growing as more traders borrow to short stocks or because they need an underlying instrument for a derivatives contract: more than $3 trillion-worth of paper will be lent out this year in America and Europe, according to Celent, a research firm.
The third change is closely related to the second: custodians are courting new kinds of customers, namely—you guessed it—hedge funds and private-equity firms. These are keen to outsource their back-office administration so they can focus on trading, and the big banks are rushing to pick up this fiddly work. One way they are doing this is through “lift-outs”, where they buy, say, a hedge fund's back-office technology and staff, move them in-house and use that platform to attract asset-servicing business from other hedge funds. In February JPMorgan Chase did a deal of this sort with Paloma Partners, a Greenwich-based fund.
Cosying up to hedge funds is about more than moving with fashion. Winning custodial work from them often leads to other business—“if you know the plumbing, you know who's running the water,” as one banker puts it. And as hedge funds tread deeper into elaborate swaps, options and the like, those who service such assets stand to gain, for with complexity comes profit. Whoever said global custody was dull?