Academic journal article ABA Banking Journal

Tough Act to Follow

Academic journal article ABA Banking Journal

Tough Act to Follow

Article excerpt

Bank of New York creates its own tough act through smart tech spending and revenue growth

If there's one truism in banking today, it's this: There is no fail-safe formula for success. As our cover story demonstrates, this year's top performers are varied in their strategies for delivering superior financial results. Capturing the highest honors in the ABA Banking Journal Performance Rankings this year, the $75 billion-asset Bank of New York reflects the concept of versatility by excelling in a variety of initiatives. Specifically, the company has benefited from its strategy of promoting securities servicing, global payment services, and fiduciary services to clients worldwide. 1999 performance was also aided by the Bank of New York's capital management strategies that contributed to its stellar 34% return on equity last year. Its return on assets was also strong at 2.6% while nonperforming assets trended down to .44% of total loans, reflecting a solid credit commitment.

While many banks have proven their ability to whack expenses, revenue growth has often emerged as an Achilles heel. Last year, however, the Bank of New York has seemingly demonstrated its ability to do both. Its efficiency ratio of 42.18% was below the top-performing group's median of 56.91%, according to the annual performance report.

Last year, the Bank of New York earned more than half of its revenue from noninterest sources--61 %, specifically, compared to 58% the previous year. Contributing to this trend was the acquisition of Royal Bank of Scotland Trust Bank.

Value-added tech spending

Bank of New York executives were unavailable for interviews prior to press time. However, industry experts credit CEO Thomas Renyi with running a tight ship, with an emphasis on both efficiency and revenue initiatives. Renyi is also recognized for striking an effective balance between the company's processing businesses and its regional consumer and commercial banking franchise in the metro New York area. Analysts say two general factors influenced Bank of New York's positive direction: an effective re-balancing of its business mix and an adroit management of the company's expense base.

"Their emphasis has been on higher value-added businesses and selling those businesses that are lower-return," says Diane Glossman, managing director with UBS Warburg. (One spinoff was BNY Financial, a factoring business.) Thomas Theurkauf, executive vice president with Keefe, Bruyette & Woods agrees and adds that the Bank of New York is efficient with dollar expenditures, particularly in the area of technology.

A fundamental difference between the Bank of New York and its competitors, according to Theurkauf, is its particular emphasis on technology spending. Theurkauf says the company indicated that it will likely spend $455 million on technology in 2000, attempting to maximize technology investments for new products and services while trying to limit the amount spent on production and required maintenance through standard and limited technology components, centralization of servers, shared resources, and disciplined vendor management. …

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