Moody's Investors Service on Tuesday placed the credit ratings of Bank of New York Mellon Corp., Northern Trust Corp., and State Street Corp. on review for a possible downgrade.
Moody's has strong ratings on all three banks, but analyst Allen Tischler said profit margins in their core businesses are narrow. He rates Bank of New York Mellon's credit at "Aa3" and has 'A1' ratings on Northern Trust and State Street's credit. All of the ratings are investment grade: "Aa3" rating is seven notches above non-investment grade or "junk" status, and an "A1" rating is six notches above junk status.
All three banks are custody banks, which means they hold the assets of investment companies and entities like pension plans. They earn the bulk of their profit through trust, investment and other servicing fees.
Tischler said the banks have strong businesses, but they face profitability problems.
"These profitability challenges are driven by the aggressive pricing of all three banks' core custody products and services, such that their overall fee revenue is roughly similar to their total expenses," he wrote.
Shares of Bank of New York Mellon fell 5 cents to $28.42 Tuesday, while Northern Trust stock lost 13 cents to $58.63 and State Street shares rose 11 cents to $65.87.
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