The concern about counterparty risk that has preoccupied investors since the collapse of Lehman Brothers last year and the increased focus on risk management and flight to strength that have been a theme ever since, have been beneficial to Bank of New York Mellon and have allowed it to accelerate its already planned expansion in Asia.
The US bank, which is a global leader in asset management and securities servicing, announced last week that it plans to recruit another 50 people for its Asia-Pacific headquarters in Hong Kong between now and the end of 2010, adding to the 150 staff it already employs here. About 60% of the new hires will be front and middle office staff focusing on sales and delivering of its services, while the remaining 40% will beef up the support for its regional business.
The hires will be made across its asset management, securities servicing, global markets and treasury services businesses, and while based in Hong Kong, many of them will focus on other countries in the region that are already strong markets for BNY Mellon and where it is expanding its services. These include India, China, Taiwan, the Philippines, Thailand, Indonesia and Malaysia.
The bank doesn't break out Asia-Pacific numbers in its results, but according to its Asia-Pacific chairman, Chris Sturdy, revenues in the region made up about 5% of the total in 2008. Historically, the rate of growth here has been four times that in the US and twice that in Europe, but he argues that this could improve even further.
"Because of the relative strength of Asia-Pacific as a region economically and because of the pace at which Asia-Pacific is going to come out of this downturn relative to Europe and the US, I believe there is every possibility that those [growth] ratios between us and the US and Europe may increase -- that Asia-Pacific may grow even faster," Sturdy said in a phone interview with FinanceAsia. "Hence, the reason why we need to expand our people out here."
To accommodate the new hires, BNY Mellon will take on an additional 15,000 square feet of space at its Hong Kong offices at Pacific Place Three. The new space will also allow the bank's asset management division, which is currently based at a different location in Hong Kong, to join the rest of the team at the headquarters, meaning all of the bank's Hong Kong staff will now be in one place.
"At a time when some international banks are scaling back their overseas investments, we are moving forward and increasing our presence in strong financial markets such as Hong Kong," said Sturdy. "If you think about our business model, it makes sense. We hold securities, we move money and securities for people, we manage securities in asset management and we administer securities on the trustee and DR [depositary receipt] side. All of those are expanding areas."
Viewed by outsiders as a strong and well-capitalised bank that has fared relatively well throughout the crisis, Sturdy noted that BNY Mellon is benefitting from the fact that it has the highest credit rating among all the major US banks (Aa2 and AA- by Moody's and Standard & Poor's respectively) and also one of the highest tier-1 capital ratios. Since ratings are highly important when clients choose who to do business with, this has made the bank a favoured counterparty in many of the services it provides.
"We have noticed in the past nine months -- whether it is asset servicing, asset management or corporate trust -- because of the counterparty concern, we have been the go-to institution. When RFPs [requests for proposals] go out today, we are almost always on the list of invited banks. That is really important as we are getting shots at a much higher percentage of opportunities across our business lines than historically," he said.
According to Sturdy, the bank also wins more business than it loses as a result of RFPs, which makes him confident that the bank is taking market share from some of its rivals.
Aside from being financially strong, BNY Mellon's Asia business has also been helped by the fact that it is independent with no brokerage business of its own. As a result, it is seen as a safe haven or an intermediary that hedge funds or private equity players can put between themselves and a broker-dealer to ensure that they are protected in case of the collapse of another investment bank.
"We do enjoy an advantage now, but I don't think this is a window that is going to be open forever," acknowledged Sturdy. "We are obviously focused right now on making sure that we put our best foot forward, but in time others will sort out their business models and while some of them may not necessarily be in the businesses they are today, I don't think we will forever enjoy the favoured state that we currently have. We know we have to make hay while the sun shines."
BNY Mellon, which celebrates its 225th anniversary this year, has $20.7 trillion of assets under custody and administration, $926 billion in assets under management, and it services $11.8 trillion in outstanding debt. It also processes an average of $1.8 trillion of global payments every day. At present, it is the fifth largest bank in the US based on market cap, with a total market value of approximately $35.3 billion.
In June it joined nine other banks in paying back the money it received from the government in October under the Troubled Asset Relief Programme (Tarp), which was aimed at giving the banks the means to continue lending.