BK Appoints Head of Derivatives - Analyst Blog

In order to leverage its strengths and efficiently grow its global derivatives business, on Wednesday, Bank of New York Mellon Corporation (BK) announced the appointment of Mr. Roderic Prat to its newly-created position – Global Head of Derivatives.

As Global Head of Derivatives, Prat is responsible for managing BK’s trading and sales for the derivatives business within its global markets. Based in New York, Prat will directly report to Richard Mahoney, Executive Vice President and Head of BK Global Markets.

Before joining BK, Prat had worked as a Senior Manager with Goldman Sachs (GS), Deutsche Bank (DB) and HSBC Holdings Plc. (HBC) for derivatives-related services.

His latest engagement was with Bank of Canada as a consultant to the Governor. In this position he was leading a project focused on the Canadian fixed income markets and related derivatives markets.

As part of its initiative to expand its global market share, BK is acquiring Germany’s BHF Asset Servicing GmbH for $343 million. The deal, which is expected to close in the third quarter of 2010, will make BNY Mellon the second largest organization in fund administration in Germany.

Also, in February, BK acquired PNC Financial Services Group‘s (PNC) investment services division for about $2.3 billion. This acquisition has increased BNY Mellon’s assets under administration by $855 billion.

BK’s fourth-quarter earnings of 59 cents per share came in above the Zacks Consensus Estimate of 52 cents. The company experienced an increase in assets under custody and administration during the quarter.

BK is well positioned to benefit from the growth of global financial assets, supported by expense management, modernization of public pension schemes and growth in cross-border investment. We, however, expect interest-bearing deposit costs to rise faster than asset yields due to competition, thereby negatively impacting net interest margin and net interest income.

Estimate Revision Trend

Over the last 30 days, 2 of the 15 analysts covering BK have lowered their estimates for the first quarter of 2010, while no upward revision was witnessed. For 2010, 2 of the 19 analysts covering the stock have lowered their estimates, while no upward revision was observed.

Currently, the Zacks Consensus Estimate for the first quarter is earnings of 53 cents per share, which would be up by 0.8% from the year-ago quarter. Also, the full year estimate of $2.35 would be up by about 8.0% from 2009.

However, the absence of upward estimate revisions for the first quarter and full year 2010 indicate a likelihood of downward pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has not been steady over the last four quarters, with two positive and two negative surprises. However, the average remained positive at 3.4%. This implies that BK has surpassed the Zacks Consensus Estimate by 3.4% over that period.