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BNY Mellon (NYSE:BK) primarily competes with State Street (NYSE:STT), JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C) in providing investment servicing (asset servicing, issuer services, clearing services) and investment management services to institutional investors around the world. Here we highlight 3 of the most important drivers for BNY Mellon’s business and the potential upside and downside stemming from their key trends.

Our price estimate for BNY Mellon stock stands at $35.76, roughly 25% ahead of market price.

Charts created using Trefis' app

8% Downside – Lower Assets under Management

We currently forecast BNY Mellon’s AuM will increase from $1.2 trillion in 2010 to over $2.2 trillion in the coming years driven by rising inflow of funds from emerging markets. However, a much slower growth to only $1.5 trillion would result in a downside of 7-8% to the Trefis price estimate for BNY Mellon.

Such a scenario can come into play as more and more people invest through online brokerage networks, which increasingly offer sophisticated value-added services such as advisory, reporting and portfolio tracking thereby reducing funds inflows to asset managers.

3-4% Upside – Higher Assets under Custody

We currently forecast BNY Mellon’s AuC will increase from $25 trillion in 2010 to over $43 trillion by the end of the forecast period. However, a higher growth in BNY Mellon’s to $50 trillion driven by a faster than expected growth in emerging markets would mean an upside of 3-4% to the Trefis price estimate for BNY Mellon. Similarly a slower growth due to slower than expected economic recovery may lead to a downside to our estimate.

Servicing Fee as a % of Assets under Custody

BNY Mellon’s stock is highly sensitive to this driver primarily because the firm has huge amounts of Assets under Custody ($25 trillion at 2010 end). Historically servicing fee as a % of Assets under Custody (AuC) has varied quite frequently, but its range has been pretty limited from 0.010% to 0.012%. We currently forecast the asset servicing fee to remain constant as a % of Assets under Custody. However, there could be significant upside or downside to the Trefis price estimate if servicing fee increases or decreases as a % of AuC in the future.

Drag the trend lines above to see the impact of these forecast charts on the stock price. Visit our site to see the complete impact of these changes.

Disclosure: No positions

Source: BNY Mellon Keys to Watch