The Bank of New York Mellon Corporation’s (BK) first-quarter 2011 earnings from continuing operationsof 50 cents per share came in 7 cents below the Zacks Consensus Estimate. However, this compares favorably with earnings from continuing operations of 49 cents in the year-ago quarter.
BNY Mellon experienced sequential and year-over-year increases in assets under custody and administration during the reported quarter, reflecting higher market values and net new business. Increasedfee revenue, wiped out provision for credit losses and rapidly growing capital were also among the positives. However, lower net interest revenue and higher non-interest expenses were the downside.
Income from continuing operations was $670 million, compared with $705 million in the prior quarter and $626 million in the prior-year quarter. GAAP net income for the reported quarter was $625 million, compared with $679 million in the prior quarter and $559 million in the year-ago quarter.
Quarter in Detail
Total revenue for the quarter was $3.6 billion, down 4% sequentially but up 8% year over year. The annual growth in revenue was primarily attributable to an increase in investment services fees as a result of improved market values, new business and acquisitions. Revenue for the reported quarter was almost in line with the Zacks Consensus Estimate.
Fully tax equivalent net interest revenues decreased to $698 million from $720 million in the prior quarter and $765 million a year ago. The sequential decline reflects the continued impact of a low interest rate environment, partially offset by higher average assets. Net interest margin deteriorated 5 basis points (bps) sequentially to 1.49%.
Investment and Other income for the reported quarter came in at$81 million, down 44% year over year. The decrease primarily reflects lower foreign currency translation and reduced lease residual gains.
Excluding restructuring charges, M&I expenses, special litigation reserves and amortization of intangible assets, non-interest expense decreased 2% sequentially but increased 20% year over year to $2.6 billion. The year-over-year increase reflects higher litigation as well as pension and healthcare expenses, and continued investments in business franchise. The sequential drop reflects the impact of seasonality.
There was no provision for credit losses in the quarter, compared with credit of $22 million in the prior quarter and a charge of $35 million in the year-ago quarter.
Assets under Management
Assets under management (excluding securities lending assets) totaled $1.23 trillion as of March 31, 2011, up 5% sequentially and 11% year over year. Both increases primarily reflect higher equity markets and new businesses.
Assets under Custody and Administration
Assets under custody and administration totaled $25.5 trillion as of March 31, 2011, up 2% sequentially and 14% year over year. The year-over-year increase primarily reflects the latest acquisitions.
Dividend and Share Repurchase Update
On March 22, BNY Mellon announced a quarterly dividend hike and share repurchase program, following the Federal Reserve’s approval. The company declared a quarterly cash dividend of 13 cents per share, up 44% from 9 cents paid in the prior quarter. The dividend will be paid on May 10 to shareholders of record as of April 29.
Furthermore, the company stated that it would buy back $1.3 billion worth of common stock through the end of 2011. In 2007, the company authorized the repurchase of 35 million shares. As of December 2010, there were 33.8 million shares available for repurchase under the same plan. In total, approximately 47 million shares are available for repurchase now, representing about 4% of the total common shares outstanding.
Though the company is well positioned to benefit from favorable long-term wealth management trends and secular growth in global capital markets, we expect interest-bearing deposit costs to rise faster than asset yields, thereby adversely affecting net interest margin and net interest income. However, BNY Mellon’s decision to hike dividend and authorize a new share repurchase program will enhance investors’ confidence in the stock.
BNY Mellon’s close competitorSunTrust Banks Inc. (STI) is scheduled to release its first quarter 2011 earnings on April 21.
BNY Mellon currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Also, in the absence of any significant positive or negative catalyst, we maintain a long-term “Neutral” recommendation on the stock.
BANK OF NY MELL (BK): Free Stock Analysis Report
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