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Rating Action:

Moody's affirms ratings of three US custody and trust banks; outlook remains stable

22 Nov 2017

New York, November 22, 2017 -- Moody's Investors Service has affirmed all of the ratings of The Bank of New York Mellon Corporation (BNY Mellon), Northern Trust Corporation (Northern Trust) and State Street Corporation (State Street) and those of their subsidiaries. The rating outlooks are stable.

BNY Mellon is rated A1, stable, for senior unsecured debt. The Bank of New York Mellon, has deposit ratings of Aa1,stable,/Prime-1, a standalone Baseline Credit Assessment (BCA) of a1, and Counterparty Risk (CR) Assessment of Aa1(cr)/Prime-1(cr).

Northern Trust is rated A2, stable, for senior unsecured debt. Northern Trust Company has deposit ratings of Aa2,stable,/Prime-1, a standalone BCA of a1, and CR Assessment of Aa3(cr)/Prime-1(cr).

State Street is rated A1, stable, for senior unsecured debt. State Street Bank and Trust Company has deposit ratings of Aa1,stable,/Prime-1, a standalone BCA of a1, and CR Assessment of Aa1(cr)/Prime-1(cr).

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Each of the banks has a standalone BCA of a1. Moody's said that the affirmation of the custody and trust banks' ratings is supported by their broad franchises in global institutional investment servicing, complemented by their sustainable positions in asset management and wealth management. Their strong market positions in investment servicing, which is all three banks' largest business line, supports their strong liquidity profiles and low asset risk.

Moody's believes that these three banks face similar challenges. Their investment servicing businesses expose them to heightened operational risk, and their capital ratios, though solid, are the weakest credit metric in their financial profiles under Moody's rating methodology. Over the last decade, all have needed to take litigation charges, many of which were associated with investment servicing activities. Moody's also noted that relatively low interest rates have weighed on the profitability of these custody banks. Consequently recent rises in short term rates have been beneficial.

Moody's said that BNY Mellon and State Street, along with JPMorgan Chase & Co., dominate the global investment servicing business. Northern Trust lags in market share but its assets have grown faster than peers', highlighting its competitiveness. Asset management franchises at BNY Mellon and State Street and the wealth management business at Northern Trust provide diversification. However, Moody's qualified that both asset and wealth management are much more fragmented markets than investment servicing, and are exposed to significant nonbank competition.

Moody's noted that robust liquidity is a key credit strength of all three banks. It is a product of their investment servicing businesses, which generate sizable deposits that are far greater than their loans. Among the three, BNY Mellon has the highest ratio of market funding, although it is still relatively low because of its ample deposits. All three banks also have sizable holdings of very liquid assets, which are greater than their wholesale borrowings and very high compared with their global peers.

Moody's considers the custody banks' asset risk profile to be a rating strength. Their business mixes and balance sheets result in only modest asset risk because the loan portfolios are small and investments are primarily deposits in central banks and US government and agency-issued securities. But the custody banks are exposed to significant operational risk. For example, BNY Mellon and State Street took sizable litigation charges in the past decade after the financial crisis. Moody's noted that Northern Trust's litigation charges were comparatively far less than those of its larger peers, which reflects Northern Trust's conservative risk management. However, Northern Trust has the largest loan portfolio, which accounts for 27% of its assets, compared with 17% at BNY Mellon and 10% at State Street.

Regarding profitability, low global interest rates and intense competition have been a constraint for all three banks in recent years, though recent modest interest rate increases are aiding the banks' profitability. The return on average assets for the first nine months of 2017 was 1.14% for BNY Mellon, 0.95% for Northern Trust, and 1.09% for State Street. These results are better than in 2016 and a noticeable improvement compared with the past several years. For BNY Mellon and State Street, balance sheet optimization and cost initiatives to generate operating leverage have also contributed to higher returns. Nonetheless, cost/income ratios remain high for all three banks. Northern Trust's expense growth has been modestly higher than its revenue growth as it makes investments to support its higher growth in assets under management and assets under custody/administration.

With respect to capital, the custody banks' position is solid overall; however, it is the weakest credit metric in the agency's rating methodology scorecard. Moody's calculation of tangible common equity as a percentage of risk-weighted asset as of June 30, 2017 was 13.1% for Northern Trust, 12.5% for BNY Mellon and 11.0% for State Street.

Factors that could lead to an upgrade

Given the comparatively high positioning of these custody and trust banks on Moody's rating scale and their similar and strong liquidity profiles, the considerations for upward movement on their bank-level BCAs are the same. Improvement in profitability ratios and stronger capital profiles, without an increase in the companies' risk profiles, could lead to positive rating pressure.

Factors that could lead to a downgrade

Downward pressure on BNY Mellon's bank-level BCA could result from a weaker capital base or a depressed earnings profile, either from sizable litigation or compliance costs or from a pronounced drop in revenue, which is not anticipated.

Downward movement on Northern Trust's bank-level BCA could result from material erosion of its core franchise, or from sizable deterioration in its loan portfolio credit quality, which is not anticipated.

Downward movement on State Street's bank-level BCA could result from a material decline in its profitability or capital ratios. State Street has been exposed to various litigation and regulatory actions, including actions tied to various misconduct that surfaced in recent years. Additional legal charges or operational shortcomings that cause a material decline in State Street's profitability or capital could lead to incremental negative rating pressure.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: Bank of New York Mellon Corporation (The)

.... Issuer Rating, Affirmed A1, stable

.... Commercial Paper, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed A1, stable

....Pref. Stock Non-cumulative, Affirmed Baa1 (hyb)

....Senior Subordinated Regular Bond/Debenture, Affirmed A2

.... Senior Unsecured Shelf, Affirmed (P)A1

....Subordinate Regular Bond/Debenture, Affirmed A2

.... Senior Subordinate Shelf, Affirmed (P)A2

.... Pref. Shelf, Affirmed (P)A3

.... Pref. Shelf Non-cumulative, Affirmed (P)Baa1

....Senior Subordinate MTN Program, Affirmed (P)A2

.... Senior Unsecured MTN Program, Affirmed (P)A1

..Issuer: Bank of New York Mellon (The)

....Senior Unsecured Bank Note Program, Affirmed (P)Aa2

....Short Term Bank Note Program, Affirmed (P)P-1

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a1

....Long term and short term Deposit Rating, Affirmed Aa1,stable,/ P-1

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa1(cr)/ P-1(cr)

.... Issuer Rating, Affirmed Aa2, stable

....Senior Unsecured Regular Bond/Debenture, Affirmed Aa2, stable

.... Commercial Paper, Affirmed P-1

..Issuer: BNY Mellon National Association

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a1

....Long term and short term Deposit Rating, Affirmed Aa1,stable,/ P-1

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa1(cr)/P-1(cr)

.... Issuer Rating, Affirmed Aa2,stable

..Issuer: BNY Mellon Trust of Delaware

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a1

....Long term and short term Deposit Rating, Affirmed Aa1,stable,/P-1

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa1(cr)/P-1(cr)

.... Issuer Rating, Affirmed Aa2, stable

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

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a1

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa1(cr)/P-1(cr)

.... Issuer Rating, Affirmed Aa2, stable

..Issuer: Mellon Capital IV

....BACKED Pref. Stock, Affirmed Baa1 (hyb)

..Issuer: Mellon Funding Corporation

.... BACKED Commercial Paper, Affirmed P-1

.... BACKED Subordinate Regular Bond/Debenture, Affirmed A2

..Issuer: Bank of New York Mellon SA/NV (The)

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a1

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa1(cr)/P-1(cr)

.... Long term and short term Local and Foreign Currency Issuer Rating, Affirmed Aa2,stable,/P-1

.... Long term and short term Local and Foreign Currency Deposit Rating, Affirmed Aa1,stable,/P-1

..Issuer: BANK OF NEW YORK MELLON SA/NV (Lux. Branch)

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa1(cr)/P-1(cr)

.... Long term and short term Local and Foreign Currency Issuer Rating, Affirmed Aa2/P-1

.... Long term and short term Local and Foreign Currency Deposit Rating, Affirmed Aa1/P-1

..Issuer: BANK OF NEW YORK MELLON SA/NV (Milan Branch)

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa2(cr)/P-1(cr)

.... Long term and short term Local and Foreign Currency Issuer Rating, Affirmed Aa2,stable,/P-1

.... Long term and short term Local and Foreign Currency Deposit Rating, Affirmed Aa2,stable,/P-1

..Issuer: State Street Bank and Trust Company

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a1

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa1(cr)/P-1(cr)

.... Issuer Rating, Affirmed Aa3, stable

....Subordinate Regular Bond/Debenture, Affirmed Aa3

.... Long term and short term Deposit Rating, Affirmed Aa1,stable/P-1

..Issuer: State Street Corporation

....Junior Subordinated Regular Bond/Debenture, Affirmed A3 (hyb)

....Pref. Stock Non-cumulative, Affirmed Baa1(hyb)

....Subordinate Regular Bond/Debenture, Affirmed A2

....Senior Unsecured Regular Bond/Debenture, Affirmed A1, stable

..Issuer: Northern Trust Corporation

....Senior Unsecured Shelf, Affirmed (P)A2

....Subordinate Shelf, Affirmed (P)A2

....Pref. Shelf, Affirmed (P)A3

....Pref. Shelf Non-cumulative, Affirmed (P)Baa1

....Senior Unsecured Regular Bond/Debenture, Affirmed A2, stable

.... Issuer Rating, Affirmed A2, stable

....Subordinate Regular Bond/Debenture, Affirmed A2

....Pref. Stock Non-cumulative, Affirmed Baa1 (hyb)

..Issuer: Northern Trust Company

.... Long term and short term Deposit Rating, Affirmed Aa2,stable/P-1

.... Long term and short term Counterparty Risk Assessment, Affirmed Aa3(cr)/P-1(cr)

.... Issuer Rating, Affirmed A2, stable

....Short term Bank Note Program, Affirmed (P)P-1

.... Adjusted Baseline Credit Assessment, Affirmed a1

.... Baseline Credit Assessment, Affirmed a1

....Senior Unsecured Bank Note Program, Affirmed (P)A2

....Subordinate Bank Note Program, Affirmed (P)A2

....Subordinate Regular Bond/Debenture, Affirmed A2

..Issuer: NTC Capital I

.... BACKED Pref. Stock, Affirmed A3 (hyb)

..Issuer: NTC Capital II

.... BACKED Pref. Stock, Affirmed A3 (hyb)

Outlook Actions:

..Issuer: Bank of New York Mellon Corporation (The)

....Outlook, Remains Stable

..Issuer: Bank of New York Mellon (The)

....Outlook, Remains Stable

..Issuer: BNY Mellon National Association

....Outlook, Remains Stable

..Issuer: BNY Mellon Trust of Delaware

....Outlook, Remains Stable

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

....Outlook, Remains Stable

..Issuer: Bank of New York Mellon SA/NV (The)

....Outlook, Remains Stable

..Issuer: BANK OF NEW YORK MELLON SA/NV (Lux. Branch)

....Outlook, Remains Stable

..Issuer: BANK OF NEW YORK MELLON SA/NV (Milan Branch)

....Outlook, Remains Stable

..Issuer: State Street Corporation

....Outlook, Remains Stable

..Issuer: State Street Bank and Trust Company

....Outlook, Remains Stable

..Issuer: Northern Trust Corporation

....Outlook, Remains Stable

..Issuer: Northern Trust Company

....Outlook, Remains Stable

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Rita Sahu
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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