The Recent Performance of Bank of New York Mellon - Essay Example

? Report on the recent performance of Bank of New York Mellon Contents Contents 2 Introduction 3 Discussion 4 The main industrial characteristics of the market 4 The financial features of the private / investment bank 6 The products & services on offer 8 The past and future strategies  10 Conclusion 13 References 14 Introduction The Bank of New York Mellon Corporation was formed in 2007 by the merger between The Bank of New York and Mellon Financial Corporation. The Bank of New York Mellon Corporation serves as a multinational banking and financial services entity and is listed in the New York Stock Exchange and in Standard and Poor 500. The Bank of New York Mellon operates all across the globe and is the biggest asset servicer in the world with more than USD 26 trillion of assets value under its portfolio. The banking entity is also one of the largest asset managers in the world managing USD 1 trillion of assets in its business. The bank of New York Mellon has an employee base of around 50,000 working in more than 100 markets throughout the globe. The Bank provides global financial services for corporations, institutions as well as the high net worth clients. The main functions of the bank are servicing and managing the financial assets of the customers. The banking corporation provides excellent asset management, wealth management, treasury services, asset management and services and clearing services. The Bank of New York Mellon Corporation is the first bank in the United States of America which joined Society for Worldwide Interbank Financial Telecommunication (SWIFT) in 2007. The Bank is also a member of the Clearing House Interbank Payment system (CHIPS). The BNY Mellon Corporation has two subsidiaries operating under its business- The Mellon Capital Management and BNY Mellon Asset Management which are used for providing the asset management and wealth management services to the institutional investors. The wealth management business of BNY Mellon Corporation is dedicated towards the high net worth investors and foundations. The paper aims to focus on the wealth management or the private banking services of BNY Mellon. The wealth management of BNY Mellon offers world class capabilities customised for all types of clients across the world. The services offered to the clients include investment management, servicing of assets and information management, planning of wealth and estate as well as private banking. The client base of the bank includes families and individuals, endowments and foundations, institutions as well as professionals. Discussion The main industrial characteristics of the market The global banking industry is characterized by most of the financial institutions struggling towards growth and implementation of change programs while managing the costs in the changing global scenario. The largest banks of the work banks are implementing evaluated restructuring programs to cut down on the costs while increasing the profitability of the business. The industry is dominated by rapid growing markets and unpredictable changes thus making flexibility and adaptability the key secrets to survive in the evolving global banking industry. The industry shows a number of conflicting challenges and demands for the banks and presents an uncertain and volatile industry landscape. Unfortunately, they had anticipated a much more benign economic environment in which to adapt to the paradigm shift in the banking landscape. Now banks face a near-perfect storm of challenges and conflicting demands in a volatile and uncertain environment, locally and globally. The economic slowdown throughout the world is varying across the different geographical sectors and the Governments continue to take strong steps towards stimulating economic growth. The global banking industry has a sustained growth rate but at a decreased magnitude (Cap Gemini Consulting, 2012, p.3). The main issues impacting the private banking and wealth management industry are with respect to then external environment of the industry, the competition levels, different business models used in the financial institutions, the target clients, the products and services offered and the pricing and distribution structure. The private banking and global wealth management industry had been affected by the economic downturn but now the industry is focused on continuous growth. The industry is majorly driven by collaborations and alliances among the different financial institutions involved in the industry (The Economist, 2013). The opportunities and challenges for the banks would be different in the developed markets and the developing markets. In the developed markets, businesses are likely to postpone their investments and try to decrease their current debts as an effect of uncertain employment and growth levels in these markets, particularly the European market. The banking industry in the United States is expected to witness an increase in the loan activities but the demand for banking products and services would have a slow growth rate though the low rates of interest are expected to stimulate the customer demands. The asset sales levels have increased significantly creating new development opportunities for acquisitions and partnerships (Maude, 2006, p.79). The demand levels in the industry will impact the industry to be dominated by simple and effectively priced products. The volatility in the industry has influenced a lower level of activities and risk taking. The developing markets are rapidly evolving with increasing disposable income levels influencing demand creation for banking products and services for both the corporate and individual customers. The international banks are focusing and investing in these markets and many regional corporations are expanding their business into the global foray. The development of franchises by the international banks is aimed to boost the investment banking and wealth management sector (Paulson, 1979, p.12). The regional banks are likely to emerge as strong contenders in the banking industry by leveraging the local factor advantages and developing new expertise for expansion into new sectors. The overall industry is characterised by increasing capital movement and trading activities. Collaboration is emphasized all across the industry within the integrated elements, within the various players in the market as well as within the clients. The regulatory developments are another major influence of the banking industry trends. The main competitors of the Bank of New York Mellon Corporation are JP Morgan Chase & Co., Barclays PLC and State Street Corporation (Scottish Investment Operations, 2013, p.9). The financial features of the private / investment bank The financial features of the BNY Mellon Corporation include Investment solutions, Asset management, Wealth Management, Broker dealer services, Collateral services, Derivatives, Depository Receipts, Corporate Trust, Central securities depository, Pershing, Liquidity services, Alternative investment services, and Treasury Services and other services and capabilities (BNY Mellon Asset Servicing, 2013). The bank business comprises of a number of affiliated investment management companies, global distribution organizations as well as wealth management companies (Bradstreet, 2011, p.21). BNY Mellon Corporation is one of the leading wealth managers in the United States with excellent capabilities and standards to accommodate a diverse and rich client base comprising of family offices, foundations and endowments, institutions, high net worth individuals and wealthy families. The BNY Mellon Corporation focuses on outsourcing, risk management, regulation and transparency as the topics of critical importance in their investment services network. The bank has invested in sophisticated business models implementing robust strategies and features to increase profitability. The bank employs a data centric model to support performance measurement, compliance activities, reporting of the clients and the investment management activities. The operating model uses several effective strategies to support the bank’s processes, accounting and operations with the investment accounting unit. The investment accounting unit of the BNY Mellon Corporation consists of Trading operations, mutual fund administration, accounting systems and institutional accounting. The bank operates with a distinctive business model focused on the service and management of global financial assets (Yahoo Finance, 2013). The bank exhibits a unique feature of paying recurring fees through the use of 18 Investment Management boutiques. The bank has extensive service capabilities with an efficient risk management mechanism implemented in the operating model. The BNY Mellon Corporation dominates the market in its major businesses and leverages the organic growth of the assets through the processes of globalization and cross country trade flows (SWIFT, 2009). The bank distributes a major portion of its earnings to its shareholders through the dividend payouts and buybacks of shares. The financial features of the bank are largely impacted by the increased activities in the capital markets, debt issuance, and increase in interest rates as well as by the volatility factor (Bloch, 1989, p.34). The main financial features of the bank include investment management, client management and investment services. The products & services on offer The BNY Mellon Corporation provides various products and services for asset management, wealth management and private banking services through its various business segments. The main services provided by the different business segments of the corporation are: Asset Management: Asset Management services provided to the institutional as well as individual investors with the aid of various asset management companies. Asset Servicing: Asset servicing is provided through broker dealer services and global custody services to different businesses, public retirement funds, global financial institutions, endowments and foundations. Clearing Services: These services are provided by delivering clearing and financing services for the investment advisors and the brokers and dealers. Issuer Services: These services are provided by shareowner services, depository receipt and corporate trust services to the different institutions. Wealth Management: The BNY Mellon Corporation provides investment planning and management, private banking services, wealth planning and estate planning services to the business enterprises, high net worth families and individuals, charitable programs and foundations (Bloomberg News, 2103). Treasury Services: The bank provides treasury services, corporate banking, working capital solution services and global payment services. The BNY Mellon Corporation is an early member of CHIPS which is the most renowned mode of payment for the international banks all across the world (Jones Lang LaSalle, 2012). The bank provides wealth management services to the wealthy clients consisting of individuals and families who have a capability of investing assets having a valuation of more than USD 1 Billion. Wealth management is operated on a broader perspective and deals with managing the investments, liabilities and assets of the clients (McKinsey & Co, 2003). The private banking services offered are an exclusive part of the wealth management domain in which the value of investable assets are around USD 1 million. The private banking services encompass deposition and payments, tax advisory services, asset management, client management, brokerage and other concierge services. The investment management services of the bank are constituted of the affiliated wealth management businesses, investment management firms and the distribution companies. The bank, through its various subsidiaries deals with retail banking, institutional and individual investment management and other ancillary services in both the United States market and other global markets (PricewaterhouseCoopers, 2013). The various products offered under the investment management boutiques are cash, overlay products, equities and fixed income products. The products are offered through the investment subsidiaries as well as the BNY Mellon Asset. The BNY Mellon Corporation acts as a one in all transaction system for the clients to trade, manage, hold, restructure, create and distribute the investments (Liaw, 1999. p.90). The past and future strategies  The major challenges faced by the BNY Mellon Corporation revolve around understanding the issues and concerns of the customers. The strategies are aimed at financial and risk management due to the increasing number of operational errors, increasing fixed expenses for supporting the products and services, requirement of investment to implement latest technology in the operating model. The bank shifted to the integration of new technology in its business processes so that the complex instruments could be handled systematically making them less prone to errors (The Goldman Sachs Group Inc, 2012). The company has to alter its strategies in order to make the operational environment comply with the new regulations and reporting structures. The consumer behaviour and target market trends are undergoing a vast transformation making it necessary for the bank to alter its strategies to become more customer-oriented rather than market centric. The regulatory reforms will create new challenges and opportunities for the banks (DeYoung, 2004, p.29-48). The industry will see a relatively lesser number of takers for a huge number of assets. To capture this as an opportunity, the bank should acquire target markets at the right time to expand their business while maintaining a high level of competition in the prices. The bank should focus on competitive strategies as the wealth management and private banking sector remains attractive due to the requirement of lesser capital infusion. The BNY Mellon Corporation should implement effective strategies to focus on the areas of: increasing competition from new entrants, implementation of latest technology in the operating model, changing the orientation of the business to focus on the customers, balance risks efficiently and effective partnerships and collaborations with different entities in the industry (The Economist. 2013). The corporation should strategize in the following areas: Adapt to the changing industry landscape: The banking industry is being extensively driven by the restructuring programs implemented in all levels of their business processes. The BNY Mellon Corporation should implement the change programs in order to cut down on the costs and increase the profitability of the business. The industry is faced with an uncertain future making it more important for the BNY Mellon Corporation to take up the arising opportunities within the right time frame (Williamson, 1988, p.88). Flexibility and restructuring: The bank should have a flexible structure to respond to the changing conditions of the market so as to avoid any loss of customers to the competitive or new financial institutions (Boston Consulting Group, 2012). Regulatory Reforms: The BNY Mellon Corporation should implement new principles and policies in the business to adhere to the new government regulations and reforms. Compliance with the changing regulatory requirements would be a major deciding factor of the strength of the bank as a successful financial corporation (Deloitte Touche Consulting, 2013). Competition: If de-globalization policy is followed, many competitors are likely to shrink in the market. This will create new opportunities for the BNY Mellon Corporation to deal with the assets at more competitive prices as the number of assets being traded will outnumber the buyers by a large difference (Ernst & Young, 2012, p.7). Technology as the main enabler: Technology has emerged as the most powerful tool in running a business effectively. The proper use of technology like predictive analysis, information systems and databases can help the bank to monitor and evaluate its performances, customer profitability as well as deliver new products and services in a way that differentiates the bank from its competitors. The bank must make intelligent investments for implementing innovative technologies in their business models to survive in the evolving global scenario (Rogan, 2012, p.67). The BNY Mellon Corporation should implement effective technology in their service delivery processes couple with a highly customer centric strategy (Tata Consultancy Services, 2013). Transformation of wealth management: The key elements of the strategies followed by the BNY Mellon Corporation include capturing the opportunities for organic growth, generating an accelerated revenue growth, delivering superior value to the clients, performing better than the competitors and according to the industry benchmarks. The BNY Mellon Corporation’s business is driven by the globalization of the investment systems and accelerated growth in the financial assets (Cap Gemini, 2013, p.8). The bank implements strategies to increase the long term viability of the business processes and delivering high returns to the shareholders by increasing the earnings per share as compared to the competitors in the industry (Harvard Business Review, 2008, p.2). The main strategies implemented by the BNY Mellon Corporation are corporate finance, transactions and support systems, sustainability strategies, loyalty management functions, strategies for the growth of revenue and distribution network, client surveying, market entry strategies, talent management, compensation, restructuring, cost cutting and increasing the effectiveness of operational processes, optimization of controls, business process reengineering, technology sourcing and implementation, risk assessments, Anti money laundering policies, compliance management, asset management, risk management in markets, credit, treasury and operations, data security, infrastructure and design and transformation of the business models (The Boston Consulting Group, 2013). Conclusion The global banking industry is evolving with a challenging landscape due to the influence of the economic movements and the formation of new regulatory policies. The major investment decisions are hindered by the economic uncertainty and the fluctuating market conditions resulting in the banks under performing as compared to the industry benchmarks. The global banking industry is experiencing major changes which include but are not limited to: The evolution of a complex and diverse customer base with higher demand levels, the range of products and services are hugely broadened and the distribution networks and client service delivery are critical factors to drive the success of any financial institution in this industry. The traditional business models are becoming obsolete and have to be fast replaced by new business models implementing technology, customer orientation, outsourcing, open architecture and collaborations. 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