BNY Mellon Sells Notes – Analyst Blog

Last Friday, the global financial services company, Bank of New York Mellon Corp. (BK) sold $650 million of senior notes. The medium term notes are due in June 2015. The interest on notes, which carry a coupon rate of 2.95%, will be payable on a semiannual basis. The size of the deal was revised upwards from the $500 million planned originally.

 

The notes carry a rating of “Aa2″ from Moody’s Corp. (MCO) and “AA-” from both S&P and Fitch. All these ratings are considered investment grade.

 

Barclays Capital Inc. and UBS Securities LLC, a wing of UBS AG (UBS), will act as the joint book runners for the issue.

 

Earlier during the month, BNY Mellon announced $700 million in common stock offering in order to partly finance its acquisition of the global investment servicing unit of PNC Financial Services Group Inc. (PNC). In February 2010, BNY Mellon announced its decision to buy the global investment servicing unit of PNC Financial 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.

 

The all-cash deal includes the purchase of $1.57 billion of stock and the repayment of inter-company debt from PNC. BNY Mellon expects this acquisition to be accretive within a year of closing the deal.

 

Along with an immediate earnings gain, this acquisition will also strengthen BNY Mellon’s capital ratios. The company expects an increase of $1.6 billion in its Tier 1 capital level.

 

We think this acquisition will perfectly support BNY Mellon’s current operational focus. The global investment servicing unit of PNC Financial synchronizes well with the company’s strategy of expanding its global and local investment services.

 

BNY Mellon has been benefiting from partnering with on-the-ground institutions and leveraging their local presence with its global capabilities. Given the huge growth potential of overseas securities markets and the rise in complex new securities, the long-term growth prospects for the industry are encouraging. We think that the recent acquisition will position the company well to grab upcoming industry opportunities.

 

However, though BNY Mellon is well positioned to benefit from the growth of global financial assets, supported by an effective expense management, modernization of public pension schemes and growth in cross-border investing, 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.