The Bank of New York Mellon Financial Corporation (NYSE:BK) does all the right things for shareholders: It grows its core business of investment management and investment services, deepens its relationships with the nation's leading corporations, endowments, pension funds and universities and remains committed to outstanding shareholder remuneration.
The Bank of New York Mellon is an integrated financial services company whose service offering comprises investment management, asset servicing, corporate trust and broker-dealer services among others.
The company (as of the end of March 2014) has $368.2 billion in assets, $1.6 trillion in assets under management and $27.9 trillion in assets under administration.
The Bank of New York Mellon looks back on more than 230 years of banking and financial services experience and has grown into a real New York institution to which high-net worth individuals flock to.
In 2013, The Bank of New York Mellon achieved pre-tax earnings of $3.7 billion on total revenues of $15.0 billion. The impressive pre-tax margin of 25% highlights the strong demand for institutional investment services, most notably stemming from corporations, pension funds and other institutional money pools.
Relationships drive long-term shareholder value
Ultimately, in business, nothing is worth more than information and relationships. Deep, long-lasting client relationships are what drives The Bank of New York Mellon's business -- and they are, of course, a result of the bank's extremely long trading record since it was established in 1784.
Why is it so important to excel on the relationship front? Well, besides the obvious reason of capturing repeat business, relationship-building actually works to increase a company's moat.
The longer relationships last, the more difficult it is for competitors to entice clients to jump ship. In fact, strong relationships will often endure even though the competitor might make an objectively better service offer.
To give you some stats, The Bank of New York Mellon has a solid grip on 'money institutions' in America: 80% of Fortune 500 companies, 66% of the top 1,000 pension and employee benefit funds, 76% of the top 100 endowments and 50% of the Top 50 universities in America get served by The Bank of New York Mellon.
As a result of a century-spanning relationship building exercise, The Bank of New York Mellon has now become a leader in a variety of service lines ranging from broker-dealer to corporate trust services.
One of the key advantages of a strongly capitalized financial services business is, that the company can funnel back decent amounts of cash to shareholders in form of dividends and share buybacks. At the end of the first quarter 2014, the financial services company reported an estimated tier 1 common equity
ratio of 11.1%. A strong capital ratio indeed.
In fact, The Bank of New York Mellon was considered one of the best capitalized banks in the stress tests of the Federal Reserve at the beginning of the year with a projected minimum tier 1 common ratio in the worst case scenario of 13.1%.
The Bank of New York Mellon has repurchased approximately $1.0 billion worth of its own shares every year from 2011 to 2013 and has retired a low-single digit percentage of its outstanding shares each year as well.
It is also noteworthy to point out that The Bank of New York Mellon has stepped up its shareholder remuneration game and expects to increase its total payout ratio to 93% in the current fiscal year.
Higher payout ratios and regular share repurchases should provide crucial support for The Bank of New York Mellon's share price over the course of the year.
Revenues and earnings should experience cyclical tailwinds
Equity indices are still close their all-time highs which generally helps The Bank of New York Mellon's investment management business.
The current state of the U.S. economy (high unemployment, low interest rates) indicates, that the U.S. economy still runs significantly below its long-term potential. The implications?
Higher GDP growth down the road should lead to higher corporate earnings with solid potential for multiple expansion. Investment management businesses should also handsomely profit from an increase in investment activity and fund flows during the expansionary phase of the business cycle: All those themes should provide substantial tailwinds for The Bank of New York Mellon.
The Foolish Bottom Line
The Bank of New York Mellon has grown into one of the largest financial services institutions over the last 230 years and has become a trusted partner for cash-rich, mostly institutional, investors who seek to put their dollars to work.
With cyclical tailwinds supporting its investment business and a focus on shareholder remuneration, investors in The Bank of New York Mellon have a lot to look forward to.
Speaking of a long track record, The Bank of New York Mellon is hard to beat.