By Saabira Chaudhuri
Bank of New York Mellon Corp. disappointed investors Friday,
reporting fourth-quarter fee revenue that was weaker than expected
and overshadowed the progress the company had made on controlling
expenses.
Shares were down 2.89% in recent trading as results missed
analyst estimates.
BNY Mellon, which acts as an investment manager while
safeguarding trillions of dollars for money managers and other
clients, posted a profit of $807 million, up from $513 million in
the prior-year period. On a per-share basis, earnings rose to 70
cents from 44 cents.
Excluding one-time items like a tax benefit and restructuring
charges, the bank posted earnings of 58 cents a share, missing the
59 cents expected by analysts polled by Thomson Reuters.
Revenue improved about 2% to $3.69 billion, while analysts had
expected $3.81 billion in revenue.
BNY Mellon's weaker-than-expected revenue offset
stronger-than-expected expense controls, due to "a soft quarter"
for its issuer services arm, noted Evercore ISI analyst Glenn
Schorr.
Revenue from issuer services, which services stock and debt
issuers around the world, was down 19% from a year earlier and 39%
from the third quarter to $193 million, the lowest level since
2007, said CLSA analyst Mike Mayo on the bank's analyst call.
BNY Mellon said in response that it had seen lower dividend fees
from its depositary-receipts business, which helps facilitate
cross-border trading. "That's our most
capital-markets-transaction-like businesses, it's a little bit less
predictable," Chief Financial Officer Todd Gibbons said on the
call. While the fourth quarter a year earlier saw corporate
transactions, "we didn't see any of that in this fourth quarter,"
he said, pointing to a flight to safety and fewer cross-border
transactions.
Still, the bank said fees from its corporate trust unit--a
component of issuer services that processes principal and interest
payments for companies, municipal governments and others that issue
debt--had climbed a bit from the third quarter.
"We are near the inflection point for improved revenue growth in
corporate trust," said Chief Executive Gerald Hassell.
BNY Mellon last year floated the possibility of selling the
corporate-trust business, but ultimately decided to keep it after
it didn't attract the price the company wanted. Mr. Hassel on
Friday said revenue in the corporate-trust business was damaged by
the rumored sale of the unit, a distraction that has now been
eliminated. "I think people realize that corporate trust is a key
component of our business and we're back in growth mode," he
said.
Overall, fee revenue rose 4.6% to $2.9 billion as a rise in
investment services helped offset a drop in investment management
and performance fees. However, it fell 24% from the third quarter
as investment services fees declined.
Foreign exchange and other trading revenue benefited from higher
volumes and volatility, rising 3.4% from a year earlier to $151
million.
The company showed strong expense controls in the fourth
quarter, as a slew of measures it has taken through the year, such
as reducing staffing, bringing application development in-house and
selling its Wall Street headquarters, bore fruit.
Noninterest expense fell 4.6% from a year earlier and 7.5% from
the third quarter to $2.75 billion, driven by declines in employee
compensation and benefits expense that offset a rise in business
development and professional services. Head count fell 1.6% from a
year ago to 50,300.
BNY Mellon estimates that expenses will rise between 1% and 2%
in the first quarter from a year earlier, driven by an acceleration
of deferred compensation costs and higher pension costs.
In an interview with The Wall Street Journal, Mr. Gibbons said
the bank's "real estate footprint is still a bit eclectic and has
room for further streamlining." He added that BNY Mellon will
continue to focus on efficiency: "There's a lot we can do."
The trust bank said its assets under custody or administration
rose 3% from a year ago to $28.5 trillion, while assets under
management climbed 8% to $1.71 trillion, helped by stronger stock
markets.
BNY Mellon also said its euro deposits fell a bit during the
quarter. The trust bank has been charging customers for euro
deposits after the European Central Bank in June imposed a negative
interest rate on deposits.
"Rates tend to be more emotional. People are very sensitive
about the rate they get paid even though the expense impact to them
tends to be nominal," Mr. Gibbons told the Journal. He said even if
BNY Mellon loses between 15% and 20% of its euro deposits, the
impact would almost "not be noticeable."
Angela Chen contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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