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Rating Action:

Moody's Downgrades BNY Mellon senior debt to Aa3 from Aa2

Global Credit Research - 08 Mar 2012

New York, March 08, 2012 -- Moody's Investor's Service today downgraded the senior long-term debt of The Bank of New York Mellon Corporation (BNY Mellon) to Aa3 from Aa2, as well as the long-term ratings of its subsidiaries. The lead bank, The Bank of New York Mellon, was downgraded to B from B+ for Bank Financial Strength and to Aa1 from Aaa for deposits. All short-term ratings were affirmed at Prime-1.

RATINGS RATIONALE

The downgrade reflects BNY Mellon's large exposure to financial institutions globally -- a sector that has become more risky in Moody's opinion. Within its payments and custody businesses BNY Mellon periodically takes large intraday exposures to financial institutions (which are often secured) and financial institutions are the largest industry concentration within its credit portfolio. The exposure to financial institutions is exacerbated by its role as a tri-party agent, which leads to very large secured intraday exposures. Moody's believes the B Bank Financial Strength rating better incorporates these risks.

The downgrade also reflects BNY Mellon's earnings challenges. Within its asset servicing businesses, BNY Mellon's pricing power has been elusive as evidenced by fees within the Investment Services segment only covering 95% of noninterest expenses in 2011. The profitability of the Investment Services segment has been hurt by declining spread income on deposits and lower foreign exchange trading and securities lending revenues. The bank is also facing rising software and sub-custodian expenses to maintain its competitive position. Its pretax margin in its core Investment Servicing segment has fallen to 29% in 2011 from 36% in 2009.

"Management has commenced a plan to save at least $650 million in costs by 2015. Successful execution of this plan will be an important factor in maintaining a stable outlook on the ratings" said Peter Nerby, a Senior Vice-President.

The rating agency also observed that BNY Mellon is one of the highest rated banks globally. The B Bank Financial Strength Rating (which translates to Aa3 on the long-term scale) reflects the bank's franchise as a leading global custodian and asset servicer, supplemented by a profitable asset management business. These attributes result in a steady stream of fee revenues, superior asset quality, and a liquid balance sheet.

Regarding rating outlooks, the rating outlook on the Bank Financial Strength Rating is stable. The rating outlook on BNY Mellon's supported deposit and debt ratings is negative, similar to that of all US banks whose deposits and senior debt ratings get lift associated with our government-support assumptions. This reflects the possibility that we may reduce our systemic support assumptions in the future as a consequence of the process set in motion by the enactment of the Dodd-Frank Act.

The methodologies used in these rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007, and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

A detailed list of the affected ratings is available on Moody's website, which may be accessed by clicking here

http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF278470

REGULATORY DISCLOSURES

Although the following credit ratings have been issued in a non-EU country which has not been recognized as endorsable at this date, these credit ratings are deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

Bank of New York Mellon (The)

Bank of New York Mellon Corporation (The)

Bank of New York Mellon Trust Company, N.A.

BNY Capital IV

BNY Capital V

BNY Institutional Capital Trust A

BNY Mellon National Association

BNY Mellon Trust of Delaware

Mellon Capital III

Mellon Capital IV

Mellon Funding Corporation

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entities or their designated agents and issued with no amendment resulting from that disclosure.

Information sources used to prepare the ratings are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

The person who approved Bank of New York Mellon SA/NV (The) credit ratings is Carola Schuler, MD - Banking Financial Institutions Group JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Peter E. Nerby
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Downgrades BNY Mellon senior debt to Aa3 from Aa2
No Related Data.

 

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