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Delivering Strength and Stability in Turbulent Times

How The Bank of New York Mellon can help you weather the storms ahead

Charting a course during difficult economic times is complicated. Determining the right partner to help you do that is much simpler.

It begins with your financial services providers and their ability to help you manage market fluctuations. Do your financial services providers have the inherent strength to do so? To be sure of your answer, you should evaluate each provider along three dimensions:

• Their core financial strength
• How well they respond to market turmoil
• Their ability to help you manage and secure your investments

Few financial services companies can do all three effectively. At the moment, many are grappling with liquidity and capitalization issues, which divert their focus and resources. Some are working through organizational changes. Others lack the expertise and creative solutions needed to swiftly address an ever-changing market environment.

However, if they can do all three effectively, the benefits to you are enormous:

• Better risk management
• Access to timely and accurate information about investments
• Increased transparency into underlying assets
• Varied and creative investment choices
• Sophisticated alternatives for cash balances
• Better management of illiquid securities
• Efficient and flexible ways to effectively rebalance portfolios

At BNY Mellon, we're confident that our company's strength, our understanding of the current environment, and our ability to provide the right tools to respond to those challenges make our company the right answer for clients looking for a business partner to help them weather the current storm.

Core Company Strength

In this environment, the key indicators of a financial company's fundamental strength are profitability, a resilient capital base and liquidity — and marketplace recognition of those strengths.

For instance, during 2008, BNY Mellon had revenue growth of 9% on an operating basis and was profitable in every quarter. Virtually every business line gained market share. Funded by cash inflows from institutions, BNY Mellon's liquidity increased dramatically throughout the year.

The marketplace recognized those strengths. BNY Mellon was the only major U.S. financial institution to receive a credit rating upgrade during 2008. The company is the highest rated holding company among U.S. financial services firms with Moody's (at Aa2), and second highest with Standard & Poors (AA-). The company's Tier 1 capital ratio strengthened to 13.3% at the end of the year.

Continued financial strength in a company's core businesses, despite a down market, indicates a successful business model. A successful business model ensures that a company will not have to divert executive talent and financial resources to redefining and transitioning its business model. Instead, the company can focus its attention on supporting its clients through difficult times and on providing superior customer service.

Responding to Market Turmoil

The second indicator of strength and stability among financial services providers is the ability to respond to changing conditions. The acid test of that responsiveness is the flexibility to rise above market conditions and develop new services and products for clients. For institutional investors and CFOs, those new services should take two forms: services that help clients manage marketplace instability (such as reducing portfolio risk and exposure), and services that help clients meet the fast-changing regulatory requirements that historically follow periods of market instability.

Managing Marketplace Instability

The performance of the financial markets during 2008 required portfolio managers to re-evaluate both their asset allocation strategies and the individual securities within their portfolios. A key area of focus was around the holding of complex assets. This was quickly followed by the need to change the asset allocation in portfolios that held any illiquid or hard-to-sell assets.

As a leading asset management company, BNY Mellon developed services specifically aimed at helping portfolio managers execute these tasks. For instance, in 2008, BNY Mellon launched Standish Global Workout Solutions to provide guidance to institutional investors in assessing the risk and value of mortgage and asset-backed securities, CDOs, SIVs and other structured and corporate finance investments. Since October, Standish Global Workout Solutions has advised clients on over $20 billion in assets.

To help clients more effectively and efficiently rebalance portfolios — especially those with illiquid or hard-to-sell assets — BNY Mellon Beta Management was launched in 2008. This service utilizes derivatives and futures to facilitate asset allocation shifts within portfolios. This service has the ability to overlay existing assets and change the asset allocation profile of the portfolio without requiring the sale of the underlying assets.

In difficult credit markets, liquidity is paramount, and many investors and corporations are awash in cash. The cash must be put to work on a daily basis, and through BNY Mellon's Liquidity DIRECT central portal, the company provides access to over 30 money fund complexes across 200 U.S. and international money funds.

Two of the most pressing concerns facing portfolio managers are: 1) growing currency risk as the scale of cross-border investing continues to rise, and 2) the inadequacies of currency hedging program alternatives. Notable among the shortcomings of conventional approaches to hedging program administration is the lack of well-defined "best practices." Through iHedge, BNY Mellon incorporates best practices into its service specifically to help manage these issues.

The Changing Regulatory Environment and Government Economic Stabilization and Stimulus Efforts

Historically, increased regulatory oversight has followed periods of market instability. BNY Mellon's expertise, as evidenced by its appointment as agent to U.S. and various European government financial stabilization and stimulus efforts, can help its clients swiftly adopt and deploy new government programs.

Recently enacted economic stabilization legislation, known as the Emergency Economic Stabilization Act of 2008, already requires that brokers report the cost basis of publicly traded equities and it is likely that additional regulatory requirements will follow during 2009. Through its Eagle subsidiary, BNY Mellon offers a brokerage investment accounting solution called Eagle Star^®, that helps brokers comply with this new law.

Access to the Right Tools

The third indicator, the delivery of the right tools, requires your financial services partner to provide tools and services with two key capabilities needed to survive this market environment: transparency and quality of execution. Transparency is necessary for you to know, at all times, your investments and their immediate value. Quality of execution is needed to ensure that, when the time is right, your provider can execute effectively on your requests.

Transparency

Transparency tools that give you clear insight into your holdings and portfolio are even more important in difficult markets. An independent partner such as BNY Mellon, who can provide leading edge accounting, administration, and custody services, is critical. For managers of alternative investments who face increased regulatory scrutiny and transparency demands related to their hedge funds, it is imperative.

Even activities related to corporate cash require higher levels of transparency. To support CFOs in this environment, BNY Mellon Asset Servicing offers enhanced corporate cash services via a relationship with Clearwater Analytics^®. This new reporting system helps corporations better monitor and manage cash reserves during times of market volatility.

In terms of greater transparency of money fund holdings, Dreyfus, a BNY Mellon subsidiary, was the first in the fund business to begin daily website postings of its money market holdings.

Quality of Execution

Quality of execution is dependent on a combination of expertise, technology and experience. Your business partner should have a culture of quality execution, derived from the efficiency and scale of its operations. BNY Mellon, for instance, provides that level of transaction sophistication. As an example, for instruction capture (SWIFT-based) and pricing capabilities, BNY Mellon processes tens of thousands of OTC transactions per month. This level of trade capture automation provides clients with more efficient and accurate mid-office and back-office operations. It also helps the valuation process, collateral management and counterparty reconciliation.

Accuracy is also key to a culture of quality execution. BNY Mellon, for instance, consistently maintains some of the highest NAV accuracy standards in the industry, with an average accuracy rate of 99.7% from 2006-2008. For mutual fund boards concerned about their fiduciary role, this level of accuracy means that the board can feel comfortable with having their fund administration with BNY Mellon as opposed to in-house or with another provider.

Weathering the Storms Ahead

BNY Mellon is a premier financial services company with the stability and operating effectiveness to help you survive these turbulent times. Not many providers can deliver everything you may need, but BNY Mellon is positioned — and committed — to do so.

In its 225 years of operation, BNY Mellon has endured more financial storms than any U.S. institution. In this global financial crisis, we remain highly liquid and have demonstrated our ability to rise above market fluctuations to provide our clients with the tools and capabilities they need to manage and secure their investments and effectively weather the storms ahead.