The Bank of New York Mellon Corporation’s (BK) third-quarter earnings from continuing operations of 51 cents per share came in 3 cents below the Zacks Consensus Estimate of 54 cents. However, this compares favorably with a loss of $2.04 in the year-ago quarter.
BNY Mellon experienced sequential and year-over-year increases in assets under custody and administration during the reported quarter. Increased securities servicing fees, improved provision for credit losses and continued long-term asset inflows were also among the positives. However, higher non-interest expenses were the downside.
BNY Mellon completed the acquisitions of Global Investment Servicing (“GIS”) and BHF Asset Servicing GmbH (“BAS”) during the reported quarter.
Income from continuing operations was $625 million, compared with income of $668 million in the prior quarter and loss of $2.4 billion in the prior-year quarter. GAAP net income for the reported quarter was $622 million, compared with income $658 million in the prior quarter and loss of $2.5 billion in the year-ago quarter.
Quarter in Detail
Total revenues for the quarter were $3.4 billion, up 4% sequentially and 3% year-over-year. The year-over-year increase in revenues was due primarily to a 20% increase in total securities servicing fees as a result of the recent acquisitions. Revenues for the reported quarter were also better than the Zacks Consensus Estimate of $3.3 billion.
Fully tax equivalent net interest revenues decreased 1% sequentially to $718 million. The sequential decrease reflects lower spreads, partially offset by the impact of higher average interest-earning assets. Net interest margin deteriorated 7 bps sequentially to 1.67%.
Investment and Other income for the reported quarter came in at $97 million, down 33% sequentially and 53% year-over-year. The year-over-year decrease reflects lower lease residual gains and a gain on the sale of VISA shares in the year-ago quarter.
Excluding restructuring charges, M&I expenses and amortization of intangible assets,non-interest expense increased 9% sequentially and 13% year over year to $2.4 billion. Both increases primarily reflect the impact of the recent acquisitions. Also, the year-over-year increase reflects the impact of acquisition of Insight Investment Management in the fourth quarter of 2009.
The provision for credit losses was a credit of $22 million, compared with a charge of $20 million in the prior quarter and $147 million in the prior-year quarter.
Assets Under Management
Assets under management (excluding securities lending assets) totaled $1.14 trillion as of September 30, 2010, up 9% sequentially and 18% year-over-year. The sequential increase primarily reflects higher market values and new business. However, the year-over-year increase was primarily a result of the acquisition of Insight.
Assets Under Custody and Administration
Assets under custody and administration totaled $24.4 trillion as of September 30, 2010, up 12% sequentially and 10% year-over-year. Both increases primarily reflect the acquisitions of GIS and BAS.
Asset and wealth management fees were $696 million for the reported quarter, up 1% sequentially and 5% year-over-year.
Dividend Update
Concurrent with the earnings release, BNY Mellon declared a quarterly dividend of 9 cents per share. The dividend will be paid on November 9, 2010 to shareholders of record as of October 29, 2010.
Though the company is well positioned to benefit from the growth of global financial assets supported by an effective expense management, modernization of public pension schemes and growth in cross-border investing, we expect interest-bearing deposit costs to rise faster than asset yields due to competitive pressure, thereby negatively impacting net interest margin as well as net interest income.
BNY Mellon currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. However, in the absence of any significant positive or negative catalysts, we maintain a long-term Neutral recommendation on the stock.
BANK OF NY MELL (BK): Free Stock Analysis Report
Zacks Investment Research
