WSJ on BNY Mellon's Deposits
"Bank of New York Mellon Shares Fall as Interest Rates Dent Profits" writes The Wall Street Journal. They tell us, "Bank of New York Mellon Corp. delivered a grim reminder that shifting Federal Reserve policies and softening long-term interest rates are taking their toll on part of the finance industry. BNY Mellon's disappointing results underline how sensitive financial firms can be to the ebb and flow of interest rates, particularly when increases in short-term rates aren't matched with rising longer-term rates.... For banks and other financial firms that fund themselves with deposits and other short-term loans and put that money to work through loans and longer-term investments, a flattening yield curve can squeeze their interest margins and leave a mark on earnings. At BNY Mellon, net interest revenue fell 8% to $841 million from a year earlier." BNY Mellon Chairman and CEO Charles Scharf comments, "Rates across the entire yield curve declined versus our assumptions, deposit balances declined, and we saw changes to the mix between interest and noninterest-bearing deposits.... We see significant competitive pressure for deposits." The Journal adds, "While Goldman Sachs Group Inc., Bank of America Corp. and other big banks were able to sidestep the brunt of these effects, custodians like BNY Mellon tend to lose clients' deposits faster as rates go up. That is because commercial banks draw more of their short-term funding from retail customers who are slower to pull their money than big companies and institutions. That is especially true for BNY Mellon, which tends to collect more deposits that don't pay interest. As rates rose, more of BNY Mellon's customers moved money out of the bank and into interest-bearing deposits with a higher yield. That shift left BNY Mellon with a bigger slice of their deposits drawing interest; meantime, the average deposit rate rose from a year ago."
