All ratings and assessments of The Bank of New York Mellon Corporation BK, Northern Trust Corporation NTRS and State Street Corporation STT have been affirmed by Moody's Investors Service. The rating outlook remains stable for all three banks.
BNY Mellon’s long-term issuer as well as senior unsecured debt rating has been affirmed at A1. The company has a standalone baseline credit assessment (“BCA”) of a1 and counterparty risk assessments of Aa1(cr)/Prime-1(cr).
For Northern Trust, its long-term senior unsecured debt rating is affirmed at A2, while its BCA is a1 and counterparty risk assessment is Aa3(cr)/Prime-1(cr).
The long-term senior unsecured debt rating of State Street is A1. It has a standalone BCA of a1 and counterparty risk assessments of Aa1(cr)/Prime-1(cr).
Reasons Behind the Rating Affirmation
Per Moody’s, these three custody banks have shown strong performance even during the uncertain economic environment caused by the coronavirus outbreak.
Although the low interest rate environment has been hurting the profitability of all banks, these three banks have solid institutional investment and asset servicing franchises that support growth. In fact, their large wealth management businesses aid in earnings diversification.
Moreover, the rating affirmation comes on the back of the banks’ solid credit and liquidity profiles.
Notably, because of the near-zero interest rate environment in the United States and a general low rate environment across the globe, banks have been facing revenue growth pressures. Because of lower rates, their net interest income and net interest margins have been negatively impacted throughout this year.
Hence, banks have been facing difficulties in organically growing their fee income and thus, are resorting to other means. They are focusing on enhancing their products to deliver revenue growth either through inorganic growth methods or third-party partnerships.
Despite these challenges, Moody's believes that all three banks have a robust liquidity position, which comes from their investment servicing franchises. In fact, these banks have generous amounts of liquid assets, which safeguard them from any market shock.
While these three banks are exposed to huge operational risks, given the size and composition of their loan portfolios, Moody’s does not see it to be substantial enough to reflect negatively on its assessment of their overall asset risk.
What Can Lead to an Upgrade in Ratings?
A rating upgrade is unlikely for all three banks over the next 12-18 months. Nevertheless, an upward rating pressure is possible if these banks demonstrate material improvement in their core profitability while maintaining a solid capital and liquidity position.
When Can the Ratings be Downgraded?
A downgrade in ratings can happen if the banks’ profitability falls below the current levels with unlikely chances of a rebound. Moreover, a significant reduction in the capitalization of the banks might result in a negative rating pressure.
All three banks mentioned above currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past few months, Moody’s affirmed ratings and outlook for many finance sector companies. A couple of them are Eaton Vance EV and SLM Corporation.
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The Bank of New York Mellon Corporation (BK) : Free Stock Analysis Report
Northern Trust Corporation (NTRS) : Free Stock Analysis Report
State Street Corporation (STT) : Free Stock Analysis Report
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