OREANDA-NEWS. August 17, 2015. Fitch Ratings has affirmed the long-term and short -term Issuer Default Ratings (IDR) of The Bank of New York Mellon Corporation (BK) at 'AA-' and 'F1+', respectively, with a Stable Rating Outlook. The ratings for The Bank of New York Mellon (BNYM), the main bank subsidiary have also been affirmed at 'AA' and 'F1+'. A full list of rating actions is at the end of this release.

The affirmation and Stable Outlook reflect BK's low-risk business model and strong franchise in global trust and custody, which has high barriers to entry and sticky customer relationships, as well as its competitive position in investment management. The ratings are also supported by BK's highly liquid balance sheet, and solid risk-adjusted capital levels. These strengths are tempered by BK's relatively lower profitability, particularly return on equity (ROE), as well as adoption of new regulatory requirements, chiefly, the enhanced supplementary leverage ratio (ESLR).

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS AND SENIOR DEBT
BK continues to have a dominant franchise in global trust and custody, with over \\$28 trillion in assets under custody and administration (AUC/A), and \\$1.7 trillion in assets under management. This scale and breadth of product offerings give the company strong client relationships. Fitch also views BK's highly liquid and low-risk balance sheet as a key rating strength, with over 30% of assets in cash and liquid securities. Fitch views BK's strong liquidity as a function of its business model. Moreover, BK's risk-adjusted capital levels have consistently remained strong, and based on its fully phased CET1 ratio of 10.0%, would already meet its buffer as a globally systemically important bank.

While BK has performed well over time, its relative performance has come under pressure, particularly given the sustained low interest rate environment. This has given rise to shareholder pressures to improve operating leverage and accelerate expense reduction initiatives. Fitch also notes that while risk-adjusted capital levels are strong, it will need to comply with the ESLR, which could dampen earnings and profitability from historical averages. At second quarter 2015 (2Q15), BK's ESLR was 4.6% and will need to get to 5.0% at the holding company level and 6% at the bank level. While Fitch expects that BK will be able to comply ahead of full implementation, it may need to take actions to get there, particularly if deposit levels stay elevated.

SUPPORT RATING AND SUPPORT RATING FLOOR
The SR and SRF reflect Fitch's view that senior creditors can no longer rely on receiving full extraordinary support from the sovereign in the event that BK becomes non-viable. In Fitch's view, implementation of the Dodd Frank Orderly Liquidation Authority legislation is now sufficiently progressed to provide a framework for resolving banks that is likely to require holding company senior creditors participating in losses, if necessary, instead of or ahead of the company receiving sovereign support.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid securities are notched from BK's VR of 'AA-' in accordance with Fitch's criteria for such instruments. Subordinated debt is one notch below the VR for loss severity. Hybrid securities are rated 5 notches below the VR, reflecting 2 notches for non-performance and 3 notches for loss severity.

HOLDING COMPANY

The VR of State Street is equalized with the VR of its operating company, SBBT, reflecting its role as a bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiary.

SUBSIDIARY AND AFFILIATED COMPANY
Fitch upgraded BNYM's LT IDR to 'AA' from 'AA-' in May 2015. The Outlooks on the LT IDRs are Stable. The upgrade of BNYM's rating to a notch above the parent company's LT IDR reflects the expected implementation of total loss absorbing capital (TLAC) requirements for U.S. Global Systemically Important Banks (G-SIBs).

The VRs remain equalized between BK and its material operating subsidiaries, namely BNYM. The common VR of BK and its operating companies reflects the correlated performance, or failure rate between BK and these subsidiaries.

LONG- AND SHORT-TERM DEPOSIT RATINGS
BK's domestic (uninsured) deposits are one notch higher than its senior debt reflecting uninsured depositors' superior recovery prospects in case of default given depositor preference in the U.S. These ratings are sensitive to any changes in BK's VR.

RATING SENSITIVITIES

IDRS, VRs, AND SENIOR DEBT
Importantly, in the absence of sovereign support, BK's IDR and senior debt ratings are sensitive to any changes in its VR. Negative rating pressures could emerge should BK materially alter its strategy, such as entry into or divestiture of key business lines. The ratings could also be negatively affected by an inability to generate sustainable positive operating leverage. As BK's ratings incorporate an expectation that it will meet all applicable capital and liquidity ratios, noncompliance with any of these could be a negative rating factor. Similar to other Trust and Processing banks, BK's ratings would be sensitive to a material operational loss event.

Positive rating momentum could occur should BK be able to improve and sustain operating performance, while maintaining its low risk profile and comply will all applicable capital and liquidity requirements. Sustained improvements in operating performance would likely be predicated on rising short-term interest rates.

The Positive Rating Outlooks for The Bank of New York Mellon S.A./N.V., Bank of New York Mellon (International) Ltd. (The), The Bank of New York (Luxembourg) S.A., and The Bank of New York (Luxembourg) - Italian Branch reflect Fitch's view that the IDRs for these entities could, over time, be upgraded and equalized with BK's domestic banking subsidiaries. This would be predicated upon final rules related to total loss absorbing capital (TLAC) and pre-positioning of this debt in material entities in an amount that would be sufficient to support a recapitalization of these entities.

SUPPORT RATING AND SUPPORT RATING FLOOR
Any upward revision to the SR and SRF would be contingent upon a positive change in the U.S.'s propensity to support its banks. While not impossible, this is highly unlikely in Fitch's view.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
BK's subordinated debt ratings are broadly sensitive to the same considerations that might affect the company's VR.

HOLDING COMPANY

Fitch could notch the holding company's VR from the operating company's VR if holding company liquidity were to deteriorate and raise concerns relative to the parent's ability to meet its obligations.

SUBSIDIARY AND AFFILIATED COMPANIES
Given that BNYM's and BK's VRs remain equalized, BNYM's ratings are broadly sensitive to the same considerations that might affect BK's VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS
The ratings of long- and short-term deposits issued by BK and its subsidiaries are primarily sensitive to any change in the company's IDR. This means that should a long-term IDR be downgraded, deposit ratings could be similarly impacted.

Fitch has affirmed the following ratings:

Bank of New York Mellon Corporation (The)
--Long-term Issuer Default Rating (IDR) at 'AA-'; Outlook Stable;
--Long-term senior at 'AA-';
--Long-term subordinated at 'A+';
--Short-term IDR at 'F1+';
--Commercial Paper at `F1+';
--Viability Rating at 'aa-';
--Preferred Stock at 'BBB';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

The Bank of New York Mellon
--Long-term deposits at 'AA+';
--Long-term IDR at 'AA'; Outlook Stable
--Long-term senior at 'AA';
--Short-term deposits at 'F1+';
--Short-term IDR at 'F1+';
--Viability Rating at 'aa-';
--Support Rating at `5';
--Support Rating Floor at `NF'.

BNY Mellon National Association
--Long-term IDR at 'AA'; Outlook Stable
--Long-term deposits at 'AA+';
--Long-term subordinated debt at 'A+';
--Short-term IDR at 'F1+';
--Short-term deposits at 'F1+';
--Viability Rating at 'aa-';
--Support Rating at `5';
--Support Rating Floor at `NF'.

BNY Mellon Trust Delaware
--Long-term deposits at 'AA+';
--Long-term IDR at 'AA'; Outlook Stable
--Short-term deposits at 'F1+';
--Short-term IDR at 'F1+';
--Viability Rating at 'aa-';
--Support Rating at `5';
--Support Rating Floor at `NF'.

The Bank of New York Mellon Trust Company, National Association
--Long-term deposits at 'AA+';
--Long-term IDR at 'AA'; Outlook Stable;
--Short-term deposits at 'F1+';
--Short-term IDR at 'F1+';
--Viability Rating at 'aa-';
--Support Rating at `5';
--Support Rating Floor at `NF'.

Mellon Funding Corporation
--Long-term IDR at 'AA-'; Outlook Stable.
--Long-term subordinated debt at 'A+';
--Short-term IDR at 'F1+';
--Short-term debt at 'F1+';
--Support Rating at '5';
--Support Rating Floor at 'NF.

BNY Institutional Capital Trust A
Mellon Capital III
--Trust Preferred Securities at `BBB+'.

Mellon Capital IV
--Trust Preferred Securities at 'BBB'.

Fitch has affirmed the following ratings with a Positive Outlook:

The Bank of New York Mellon (International) Ltd
--Long-term IDR at 'AA-'; Outlook Positive;
--Short-term IDR at 'F1+';
--Support at '1'.

The Bank of New York (Luxembourg) S.A.
The Bank of New York (Luxembourg) S.A. - Italian Branch
--Long-term IDR at 'AA-'; Outlook Positive;
--Short-term IDR at 'F1+';
--Support at '1'.

The Bank of New York Mellon S.A./N.V.
--Long-term IDR at 'AA-'; Outlook Positive;
--Short-term IDR at 'F1+';
--Long-term Deposits 'AA-';
--Short-term Deposits 'F1+';
--Support at '1'.