Credit Brendan McDermid/Reuters
There’s a potentially ideal merger partner for the $104 billion Goldman Sachs. The Wall Street firm’s chief executive, Lloyd C. Blankfein, told shareholders on Tuesday that it was already having some success turning around its stumbling fixed-income, currency and commodities trading unit. But buying $56 billion Bank of New York Mellon could be a better fix — if only the asset-management and custody specialist weren’t in a different league.
If the two were to combine, Goldman would get hold of more than $33 trillion in assets under custody and supervision — think clearing, cash management, global payments and the like. Goldman may be able to sweet-talk Bank of New York Mellon clients into sending more trades its way.
JPMorgan and Citigroup already use similar businesses to great effect, helping to explain why their F.I.C.C. traders rake in twice as much revenue or more. The match could also help Goldman meet Mr. Blankfein’s goal, laid out in September, of broadening its reach with both investors and corporations.
Marrying Bank of New York Mellon also would reduce Goldman’s reliance on trading. The F.I.C.C. unit, for example, would account for just 11 percent of revenue, down from 17 percent. A union would also more than double assets under management to $3.4 trillion and take that division’s share of the top line to more than 45 percent. On top of that, if Goldman could cut as much as 20 percent of its target’s expenses, those would be worth some $17 billion once taxed and capitalized — enough to justify paying a 30 percent premium to Bank of New York Mellon’s current market value.
This bank dating-app math may, however, obscure real-world compatibility issues. First, Bank of New York Mellon may not relish losing its independence, and Charles W. Scharf took over as its chief executive only last summer. Second, some of the firm’s customers may balk at the idea of Goldman’s having even broader access to their business and data.
Finally, as much as banks’ mood about regulation has brightened in the past year, allowing two systemically important financial institutions — one in trading, the other in clearing and custody — to hook up has been taboo for a decade. That may be changing. For now, Goldman can browse, but it could be too soon to swipe right.