Trust banks such as State Street Corp. and Bank of New York Mellon Corp. may be a safer bet than commercial banks in uncertain times, but low interest rates are one caution Goldman Sachs Group Inc. highlighted Monday.
The company said that it cut its sector view of trust banks to "neutral" from "attractive," saying rates could be an "ongoing headwind" that counteracts strong markets.
Bank of New York Mellon was singled out for a downgrade to "neutral" from "buy" by Goldman analysts led by Brian Foran, who said that revenue from its money market mutual funds and its corporate bond trustee business may be disappointing if low rates persist.
Nearly one-third of Bank of New York Mellon's revenue comes from money market mutual funds and issuer services, which includes the bond trustee business, and "both of these businesses are likely to be declining over time," the analysts said.
Credit writedowns will also be a factor: The bank has $7 billion of alternative-A securities, $1.5 billion in commercial mortgages and $500 million in construction loans, of which Goldman predicts $350 million in third-quarter losses.
Goldman cut its third-quarter earnings view for Bank of New York Mellon to 30 cents a share from 50 cents, and its 2010 earnings estimate to $2.25 from $2.75.