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U.S. Bancorp wasn't the only conviction buy that Berkshire Hathaway made in the banking sector -- the other was
Bank of New York Mellon (
BK). And like USB, BNY Mellon's best attributes are the factors that make it different from the other banks on the market. BNY Mellon is one of the biggest custody banks and asset managers in the country, catering to financial firms' back-office needs rather than lending cash to retail and commercial banking customers.
Those twin fee-driven businesses make BK a very different company than most; it earns hefty net margins that weigh in near those of a regional bank, and isn't as sensitive to the ebb and flow of the lending environment as traditional banks. And because BK has huge exposure to the investment world, the equity rally's swelling effect on assets carries over to similar gains for BNY Mellon's profits. BNY Mellon's positioning as one of the biggest in the world gives it cost advantages and lowered counterparty risk that makes it more attractive than most of the rivals it comes up against. As the firm grows its focus on the higher margin asset management business, it should be able to collect more cash for every dollar on deposit.
Berkshire Hathaway added 5.7 million shares to its stake in BNY Mellon this past quarter, hiking its stake in the bank by 31%. Investors looking for financial sector exposure without the labyrinthine balance sheet risks of a conventional bank should give BK a closer look.