Big, Boring Bank of New York: Is It Safe?

NEW YORK (TheStreet) -- Bank of New York Mellon's(BK) stock is relatively expensive compared with that of most other large banks, but the company's lower risk makes it attractive.

Among the 10 largest holding companies by asset size, only State Street's(STT) shares trade at a higher multiple to tangible book value. Bank of New York Mellon and State Street stand apart from rival banks because of their lower credit risks, due to very small loan portfolios, and fee-income-based business models that are expected by analysts to rebound sooner.

Sure enough, among the 10 biggest banks, Bank of New York Mellon's shares have risen the least since the S&P 500 Financials Index bottomed March 6. The stock returned 53% in that time, compared with Bank of America's(BAC) almost five-fold gain, Citigroup's(C) and Capital One's(C) four-fold increases, and Wells Fargo's(WFC) doubling.

Bank of New York Mellon is a lower-risk, lower-reward play, because of its focus on asset management and services, including asset custody, the category in which it dominates. For the year ending with the March 6 bottom, the shares fell 57%, the best among the 10 largest bank holding companies, save for JPMorgan Chase(JPM), which declined 56%.

Goldman Sachs(GS) analyst Brian Foran said in late September that Bank of New York Mellon's revenue could "disappoint as one quarter of the company is shrinking (money market mutual funds and corporate bond trustee) while credit write-downs will again be an issue." Bank of New York Mellon is scheduled to report earnings Tuesday.

The credit risk cited in the Goldman Sachs report was Bank of New York Mellon's $7 billion "Alt-A" securities portfolio. Those securities bundle mortgage loans that are priced higher and considered riskier than "prime" mortgages, usually because of lower documentation and credit standards. Alt-A mortgages became popular during the real-estate boom, with even the government-sponsored mortgage giants Fannie Mae(FNM) and Freddie Mac(FRE) jumping into the business.