DBRS Confirms Bank of New York Mellon Corp. at AA (low); Trend Remains Positive

DBRS has today confirmed all ratings of The Bank of New York Mellon Corporation (BK or the Company) and its related operating subsidiaries, including its Issuer & Senior Debt rating of AA (low). The trend for all long-term ratings remains Positive, while the trend for all short-term ratings remains Stable. The rating action follows the Company’s announcement of an approximately $425 million after-tax charge to be taken in the third quarter related to supporting clients with company-related fund investments that were adversely affected by the Lehman Brothers bankruptcy filing and other market turmoil.

DBRS notes that the estimated $650 million pre-tax charge, while material, can be absorbed by BK’s strong quarterly income before tax and provisions, which has averaged over $1 billion for the past four quarters. DBRS believes that the Company’s action to support customer investments in its funds while the industry is currently experiencing unprecedented disruptions is a rational effort to sustain client relationships. DBRS also recognizes the potential negative financial impact if increasing levels of support for its funds were required as further deterioration in already disrupted market conditions adversely impacts the funds.

The rating confirmation and positive outlook on long-term ratings reflect DBRS’s view that BK’s core business and global franchise were strengthened following the July 2007 merger with Mellon Financial Corporation (Mellon). The merger has resulted in a more-diverse business mix with substantial synergies, better-than-expected cost savings and a reduced risk profile. These benefits have already boosted the Company’s market positions, revenues and adjusted core income, enabling stronger capital generation. The existing short-term ratings reflect ample intrinsic liquidity and ready access to a variety of funding sources at some of the lowest spreads in the currently difficult funding market.

The merger has propelled the already-leading Company to a strong global leadership position in securities servicing with over $23 trillion in assets under custody and administration, as well as enhancing its substantial role in providing clearing, corporate trust, depository receipts and stock transfer services. Moreover, the merger has boosted the Company to strong positions in asset management, with over $1.1 trillion in assets under management (AUM), cash management and payment services. Although influenced by changes in market prices, most of these businesses generate relatively stable revenues. The large-scale, strong competitive position and global diversification of these franchises collectively underpin DBRS’s expectation that the Company will be able to sustain strong and growing earnings and profitability commensurate or exceeding its rating peers.

DBRS notes that BK’s strong earnings and profitability have been constrained in the past three or four quarters by various one-off charges, including merger and integration expenses, investment write-downs, lease accounting charges and consolidation of its Three Rivers Funding Corp. conduit back onto the Company’s balance sheet. Various charges and unrealized mark-to-market losses are likely to continue in the currently difficult operating environment, and DBRS also expects a slowdown in the Company’s revenue growth compared to the recent past. Nonetheless, DBRS expects that BK will sustain core earnings and profitability in line with or exceeding those of its peers rated similarly by DBRS.

Regulatory capital levels have healthy cushions above well-capitalized guidelines with Tier 1 capital expected to be approximately 9% and tangible capital over 4% at September 30, 2008. Furthermore, BK has been a beneficiary of a flight-to-quality in the capital markets and has considerable liquidity, currently exceeding 50% of its total assets.

The Company’s ability to sustain and enhance its revenues, earnings and profitability above its current rating level could result in positive ratings actions. Sustained charges, rapidly rising levels of fund support, declining profitability and/or capital levels could result in the return of the outlook to stable.

The Bank of New York Company, Inc., a financial services holding company with headquarters in New York, NY, reported over $200 billion in assets at June 30, 2008.

Note:
All figures are in U.S. dollars unless otherwise noted.