Fitch Affirms Bank of New York Mellon; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed Bank of New York Mellon Corporation (BK) and its affiliates' ratings. The Rating Outlook is Stable. A complete list of all rating actions follows at the end of this release.

Fitch's affirmation is supported by BK's diversified business mix, its large scale and leading market position in many of its core activities, its stable funding base and good risk management processes. Several of BK's core business lines are attractive high margin activities with high barriers to entry. In Fitch's view, this increases the company's franchise value and enables it to deliver consistent core earnings.

BK's regulatory capital ratios and TCE ratios have increased over a period of years, and its capital base is appropriate for its rating level, in Fitch's view. Nonetheless, prospective Basel III capital rules are likely to require additional increases in capital. BK expects to have Tier 1 Capital sufficient to meet the core Basel III requirement by year-end 2011 (YE'11), well ahead of the 2013 implementation date. However BK, as a systemically important bank, may be required to hold significant additional capital over the core Tier I requirement. Fitch believes that BK's good capital generation ability should enable it to continue building capital to meet prospective rules. Disposal of non-investment grade securities that carry punitive risk weights under Basel III could also help improve the prospective Tier 1 Capital ratio.

BK received approval from the Federal Reserve Board to increase its dividend and repurchase shares earlier this year. Fitch's view of capital sufficiency takes into account the increased payout to shareholders. The parent also has sufficient cash resources at the parent level to enable it to pay the higher dividends and repurchase shares while retaining good financial flexibility.

BK reduced its risk in its investment portfolio in late 2009 by selling certain vulnerable securities and writing other securities down substantially. However, BK's investment portfolio still contains $10 billion of securities that have a higher risk of impairment which have been placed on management's 'Watch List.' It also contains about $3.5 billion of non-agency residential mortgage-backed securities (RMBS), many of which were written down in 2009. While the market value of these securities is greater than current book value, the bulk of this portfolio carries below investment grade ratings. Although BK's vulnerability to other than temporary impairment is less than it was before the 2009 portfolio restructuring, some vulnerability remains, and poses potential risk in a renewed market downturn.

Support ratings and support floors of BK's U.S. bank subsidiaries remain on Rating Watch Negative due to Fitch's view of likely changes in the U.S. regulatory framework. Support ratings of other large U.S. banks have also been placed on Rating Watch Negative. Since the Issuer Default Ratings (IDRs) and Outlook do not rely upon government support, any downgrade in the Support Rating and Support Floor will not impact the company's other ratings.

The IDRs of BK's non-U.S. bank subsidiaries continue to be linked with BK's ratings due to strong institutional support, close integration with enterprise-wide risk management systems, and the close global integration of key business lines.

The Rating Outlook is Stable. BK's diversified business model should enable the company to sustain core profitability even during a period of significant market stress similar, with broad declines in both equity and fixed income markets. Near term upside ratings potential is limited due to the regulatory uncertainty surrounding capital levels and remaining investment portfolio risk. Over time, higher capital levels and reduction of risk in the investment portfolio could cause upward ratings momentum. If BK incurs investment portfolio impairment, operational errors, litigation losses, or credit losses that are large enough to have a significant impact on capital, such losses could put downward pressure on BK's Outlook and/or ratings.

BK is the world's largest global custodian and corporate bond trustee, and is one of the top players in a number of other businesses such as asset management, wealth management, government securities clearance, global payments, correspondent clearing, depository receipts issuance and shareholders services.

Fitch has taken the following rating actions:

The Bank of New York Mellon Corporation

--Long-term Issuer Default Rating (IDR) affirmed at 'AA-';

--Long-term senior affirmed at 'AA-';

--Long-term FDIC guaranteed debt affirmed at 'AAA';

--Long-term subordinated affirmed at 'A+';

--Short-term IDR affirmed at 'F1+';

--Commercial paper affirmed at 'F1+';

--Individual affirmed at 'A/B';

--Support affirmed at '5';

--Support floor affirmed at 'NF';

--Rating Outlook Stable.

The Bank of New York Mellon

--Long-term deposits affirmed at 'AA';

--Long-term IDR affirmed at 'AA-';

--Long-term senior affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Short-term IDR affirmed at 'F1+';

--Individual affirmed at 'A/B';

--Rating Outlook Stable;

--Support '1' remains on Rating Watch Negative;

--Support floor 'A+' remains on Rating Watch Negative.

BNY Mellon National Association

--Long-term IDR affirmed at 'AA-';

--Long-term deposits affirmed at 'AA';

--Long-term affirmed at subordinated debt 'A+';

--Short-term IDR affirmed at 'F1+';

--Short-term deposits affirmed at 'F1+';

--Individual affirmed at 'A/B';

--Rating Outlook Stable;

--Support '1' remains on Rating Watch Negative;

--Support floor 'A+' remains on Rating Watch Negative.

BNY Mellon Trust Delaware

--Long-term deposits affirmed at 'AA';

--Long-term IDR affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Short-term IDR affirmed at 'F1+';

--Individual affirmed at 'A/B';

--Rating Outlook Stable;

--Support '1' remains on Rating Watch Negative;

--Support Floor 'A+' remains on Rating Watch Negative;

The Bank of New York Mellon Trust Company, National Association

--Long-term deposits affirmed at 'AA';

--Long-term IDR affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Short-term IDR affirmed at 'F1+';

--Individual affirmed at 'A/B';

--Rating Outlook Stable;

--Support '1' remains on Rating Watch Negative;

--Support floor 'A+' remains on Rating Watch Negative.

Mellon Funding Corporation

--Long-term IDR affirmed at 'AA-';

--Long-term senior affirmed at 'AA-';

--Long-term subordinated debt affirmed at 'A+';

--Short-term IDR affirmed at 'F1+';

--Short-term debt affirmed at 'F1+';

--Individual affirmed at 'A/B';

--Support affirmed at '5';

--Support floor affirmed at 'NF';

--Rating Outlook Stable.

The Bank of New York Mellon (Ireland) Limited

--Long-term deposits affirmed at 'AA';

--Long-term IDR affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Short-term IDR affirmed at 'F1+';

--Support affirmed at '1';

--Rating Outlook Stable.

The Bank of New York Mellon (International) Ltd

--Long-term IDR affirmed at 'AA-';

--Short-term IDR affirmed at 'F1+';

--Support affirmed at '1';

--Rating Outlook Stable.

The Bank of New York (Luxembourg) S.A.