How New York Mellon (NYSE: BK), JP Morgan (NYSE: JPM) and State Street (NYSE: STT) Thrived Through Financial Crisis

Although there are a few major institutions like Citibank and Bank of America that were hammered by the financial crisis, some banks, like JP Morgan Chase (NYSE: JPM), Bank of New York Mellon (NYSE: BK) and State Street (NYSE: ST) got through the recession with relatively little pain because they avoided some of the riskiest plays made by some other nationwide banks.

JP Morgan Chase released its earnings last week beating all analysts’ expectations. Although JP Morgan has been set back and estimates that it will have to write down about $2 billion in bad loans, it’s a relatively lower exposure to the credit crisis than some of its competitors have had. JP Morgan has also benefited very well from various investments and has a solid financial footing. Investors are flocking to banks like JP Morgan because they have lowered their standards for financial services companies and are flocking to firms that were able to avoid high rates of non-performing loans.

Bank of New York Mellon and State Street both survived the financial crisis with a different strategy than JP Morgan. While JP Morgan offset their non-performing loans by making solid investment revenue, these two banks survived the recession without much pain because of their minimal exposure to mortgage backed securities and other products that went sour. Banks like State Street and New York Mellon were able to keep a profit because they are largely in the less than exciting business of asset custody. Many investors are quick to look over these “Plain Jane” banks for firms with more excitement, but with added excitement comes added risk—and during the financial crisis, that’s exactly what banks didn’t need.

Although the business of custody banking is relatively unexciting, banks that focus on taking deposits and making loans rather than on high-risk, high-reward investment banking are much better bets than some of the big-name banks. Bank of New York Mellon has had an operating margin of 19% during the last 12 months and State Street has had a very impressive operating margin of 32%.

Both Bank of New York and State Street will report their third-quarter earnings tomorrow and will likely benefit from their relative stability. Both have business services such as record keeping, performance analysis and trade execution which provide the banks a steady stream of income in any economy.

These two banks haven’t had the growth that Citibank, JP Morgan Chase, Wells Fargo and Goldman Sachs have this year, but they’re a lot less volatile.