By Julie Steinberg and Everdeen Mason
Bank of New York Mellon Corp. reported its fourth-quarter profit
fell 15% and missed analyst expectations as investment charges and
rising expenses offset improved market conditions and growth in
assets.
BNY Mellon reported a profit of $539 million, down from $635
million a year earlier. Per-share earnings, which reflect preferred
dividends, fell to 44 cents from 53 cents. The latest period's
results include an after-tax loss of 10 cents a share related to an
equity investment.
Revenue slipped to $3.59 billion from $3.62 billion, and total
fee revenue slid 1.5% to $2.76 billion. Analysts polled by Thomson
Reuters forecast per-share earnings of 54 cents on revenue of $3.72
billion.
Citigroup analyst Josh Levin said the profit miss was "driven
largely by expenses." Expenses rose 1.8% from a year earlier and
3.5% from the third quarter to $2.88 billion. Some of the expense
rise comes as the firm invests in areas where it wants to grow such
as wealth management and alternative asset management.
Shares fell 3.6% to $32.70 on Friday.
The firm took a write-down against its minority ownership stake
in brokerage firm ConvergEx Group LLC, people familiar with the
matter said. Last month, ConvergEx agreed to pay more than $151
million to settle criminal and civil charges that it inflated fees
when trading for clients. At the time, ConvergEx Chief Executive
Officer Joseph Velli said, in a statement, that "by resolving these
matters, we have accepted responsibility and deeply apologize to
those customers who were adversely affected."
Stripping out the loss, BNY Mellon met analyst expectations of
per-share earnings of 54 cents. A spokesman for ConvergEx declined
to comment on its relationship with BNY Mellon.
One issue in recent quarters for banks such as BNY Mellon has
been low interest rates. BNY Mellon had to waive fees on money
funds because of low interest rates, which has resulted in a
"challenging" few years, Chief Financial Officer Todd Gibbons
said.
Trust banks such as BNY Mellon traditionally have acted as
custodians and services for corporations and Wall Street and earn
most of their money collecting fees for various servicing
activities, such as safekeeping and accounting. They make fewer
loans than commercial banks and therefore invest more of their
deposits in securities, which has hurt earnings in recent years
because of low bond yields.
But wealthy individuals are increasingly controlling assets,
prompting BNY Mellon to increase its focus on its retail
channels.
"When you think about pension funds, that's not where assets are
being accumulated," said Chief Executive Gerald Hassell on a call
with analysts. Assets are accumulating with the "individual
investor," he said.
As an investment company, he said, BNY Mellon goes to "where
investment assets are. The investment assets are with wealthy
individuals."
To focus more on retail investors, BNY Mellon has expanded its
wealth-management unit and launched a private banking program
within its investment-servicing business. The firm said last May
that it would add as many as 100 positions to its wealth-management
sales force and hire private bankers and mortgage bankers.
The bank said that in six months, the program has resulted in
$300 million in loan demand from registered investment advisers,
who advise and manage wealthy individuals' assets.
The bank also is increasing its exposure to the alternative
investments space, an area of growth for the firm, Mr. Hassell
said.
The firm has made "huge investments" to service clients such as
hedge funds, Mr. Gibbons said in a phone interview. Mr. Gibbons
said the focus on alternatives also extends to the
wealth-management channel, where retail investors can gain access
to hedge fund and private equity investments.
The bank said it expects to see results from the investments in
the alternatives and in its wealth-management platform by the end
of the year.
Helped by strong stock prices, assets under management jumped
14% from a year earlier to $1.58 trillion as of the end of the
quarter, while assets under custody and administration increased 5%
to $27.6 trillion. Investment servicing fees also got a boost from
the strong equity markets in 2013, increasing 5% to $1.68
billion.
Saabira Chaudhuri contributed to this article.
Write to Julie Steinberg at julie.steinberg@wsj.com and Everdeen
Mason at everdeen.mason@wsj.com
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