BNY Mellon Gets Beijing License - Analyst Blog

On Monday, BNY Mellon Corporation (BK) got the authorization from China Banking Regulatory Commission (CBRC) to open a banking branch in Beijing to provide services to the company’s institutional clients.

The license for setting up the bank branch is expected to enhance BNY Mellon’s local and global facilities in China. However, the company does not aim to provide any retail baking services at the Beijing branch. The company opened its first office in China in 1994. In 1999, the company got its license for the Shanghai branch.

BNY Mellon has appointed Mr. Larry Chen, previously the chief representative of the Beijing Representative Office, as the General Manager of the Beijing branch.

At present, the company has about 150 employees working at Shanghai and Beijing branches and expects to employ 70 more people by 2013, as its business expands in the region through the acquisition of local capabilities.

BNY Mellon has a large number of products and services that will help the Chinese financial institutions to meet their objectives of accomplishing positive returns. In the beginning, BNY Mellon focused on providing treasury, trade and payments services in China . Going forward, it now consists of a wide range of products and services – custody, assets management, fund administration, foreign exchange and depositary receipts.

BNY Mellon anticipates China to have a very good growth prospects in future, which will help the company in its objective of becoming a leading international financial institution providing services in the country. By giving the license for opening a banking branch in Beijing, the Chinese establishments are showing their eagerness of converting China into a global financial hub.

In July 2009, BNY Mellon had received a banking license from Australian Prudential Regulation Authority to set up a branch in Sydney. In October 2009, the company also got the sanction from the Irish Financial Regulator to open a new bank branch in Ireland .

In February 2010, BNY Mellon announced its decision to buy the global investment servicing unit of PNC Financial Services Group Inc. (PNC) for $2.31 billion. The deal, which is expected to close in the third quarter of 2010, will help BNY Mellon become the second-largest provider of fund accounting, administration and transfer agency services by adding $855 billion in assets under administration.

BNY Mellon is also expected to receive regulatory approval from the Chinese authorities for its asset management joint venture with Western Securities in China. Thus, the company will become another major bank to enter the Chinese capital market apart from JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and UBS AG (UBS).

BNY Mellon has been benefiting from partnering with already existing institutions and leveraging their local presence with its global capabilities. Starting from granting license to set up a banking branch in Beijing, BNY Mellon is expected to make further inroads into the South-East Asian regions as the company already has its presence in Japan, Taiwan and India. As a part of the company’s growth strategy, granting of license to set up bank branch in Beijing is expected to enhance its revenue and earnings growth in the days ahead.

Though BNY Mellon Corporation is well positioned to benefit from the growth of global financial assets, we expect interest-bearing deposit costs to rise faster than asset yields due to competitive pressure, thereby negatively impacting net interest margin as well as net interest income. This justifies BNY Mellon’s current rank of Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. Hence, we maintain our recommendation of Neutral rating on the stock.