Increased diligence on the profitability of clients has paid off for BNY Mellon according to its recent results, with this trend likely to continue for custodian banks.
Earlier this week, BNY Mellon reported revenues from asset servicing fees increased by $2 million to $1.04 billion.
As a result of increased capital burdens and regulatory pressures, custodian banks have refocused their strategy towards clients with an emphasis on profitability.
Following the bank’s big mandate win with T.Rowe Price last year, it has recorded relatively flat business wins in consecutive quarters. This is perhaps a sign that BNY Mellon’s strategy on focusing the real big profitable clients will continue.
“Our focus on profitable client relationships over sort of just pure revenue and market share, we’re being extremely disciplined and selective about the new business assignments we take on,” said Brian Shea, vice chairman and CEO of BNY Mellon’s Investment Services business, on the bank’s quarterly earnings call.
“And that’s actually part of the reason you’re seeing improved operating margins and you’re seeing our fee to expense ratio improve significantly. But in terms of the pipeline, the pipeline remains actually pretty strong. It’s up significantly on a sequential basis. And we still believe that this is a strong growth driver for the company going forward.”
Years of low interest rates have significantly hit profits custody banks can make from safeguarding assets. However at the end of the last year with the move from the US Federal Reserve to increase interest rates, fees from holding assets will likely increase for custodians.
In addition, BNY Mellon has begun implementing its new cloud-based technology platform in key business areas including asset servicing and global markets.
Gerald Hassell, chairman and CEO of the world’s largest custody bank, said on its first quarter earnings call that it has received positive feedback on the Nexen platform, which went live for clients in October last year.
“We’ve begun rolling out Nexen to our clients in asset servicing, liquidity services, global markets, and corporate trust, and we are collaborating with clients to deliver an enhanced experience,” says Hassell.
BNY Mellon reaps benefits of client diligence
Increased diligence on the profitability of clients has paid off for BNY Mellon according to its recent results, with this trend likely to continue for custodian banks.