The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, June 23 (Reuters Breakingviews) - Alexander Hamilton’s legacy at this point may be the musical bearing his name, but the 241-year-old bank he started has seen its own star rise on Wall Street. Bank of New York Mellon, whose roots trace back to the first U.S. Treasury secretary, may be keen to join forces with smaller rival Northern Trust. It has bulked up on deals before, and this time it would benefit from a more favorable regulatory environment, swings in relative valuations and chunky cost savings.

The largest so-called custodian bank in the world, whose services include safeguarding and managing money for companies and investors, merged with peer Mellon Financial almost two decades ago in a $16.5 billion deal. Subsequent acquisitions added greater heft; BNY even landed a role looking after the U.S. government’s crisis-era bank bailout fund more than two centuries after it provided the country with its first loan.

Combining with $22 billion Northern Trust, an approach that was reported on Sunday by the Wall Street Journal, would be a considerably chunkier transaction. Under former President Joe Biden, consolidation-wary authorities may well have looked askance at such a notion, given their efforts to tighten up rules governing bank merger reviews. Donald Trump, however, has now signed off on repealing such changes, while approving the union of credit card issuers Discover Financial Services and Capital One Financial augurs a more permissive attitude.

BNY boss Robin Vince has another good reason to woo Northern Trust. Since he became CEO in 2022, his bank’s share price has more than doubled and now trades at 1.5 times expected book value, according to LSEG data, up from 0.8 times in mid-2023. Northern Trust’s multiple has slipped from its post-pandemic high, causing the dueling valuations to converge.

Northern Trust says it is “fully committed to remaining independent,” throwing cold water on BNY’s entreaty. If Vince can press the advantage, however, there’s plenty to gain. When BNY and Mellon merged, they projected cost savings of $700 million, or more than 8% of combined expenses. The same math implies annual synergies of about $1.5 billion.

Taxed at the standard corporate rate and capitalized, they would be worth $12 billion today, which would more than cover even a 20% premium for Northern Trust. With such an opportunity within reach, Vince may find inspiration in Broadway’s version of the BNY founder: he famously resolved not to throw away his shot.

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CONTEXT NEWS

Bank of New York Mellon, which helps safeguard and manage money for companies and investors, has approached smaller rival Northern Trust to express interest in a merger, the Wall Street Journal reported on June 22, citing unnamed sources.

Shares of BNY, the world’s largest so-called custodian bank, dipped about 2% in morning trading on June 23. Northern Trust shares rose around 9%.

A Northern Trust spokesperson said the company "is fully committed to remaining independent."

(Editing by Jeffrey Goldfarb; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))