By Saabira Chaudhuri and Michael Calia
Bank of New York Mellon Corp. swung to a first-quarter profit as
the trust bank benefited from comparison with a year-earlier period
weighed down by a large one-time charge, and showed tighter expense
controls.
The bank posted a profit of $661 million, compared with a loss
of $266 million a year earlier, which was weighed down by an $854
million charge tied to a U.S. Tax Court's disallowance of certain
foreign tax credits. Per-share earnings, which include preferred
dividends, were 57 cents, higher than the 53 cents expected by
analysts polled by Thomson Reuters.
On a conference call, Chief Executive Gerald Hassell noted that
per-share earnings during the quarter benefited from a tax benefit
of roughly three to four cents a share.
Revenue rose by less than 1% to $3.65 billion in the period.
Analysts had expected revenue of $3.73 billion.
Bank of New York Mellon continued to be hit by low interest
rates, forcing the trust bank to again waive fees on money market
mutual funds. "The average Fed fund's effective rate was down
nearly 50% from last year which had a negative impact on the money
market fee waivers and net interest income," said Mr. Hassell. He
noted that the fee waivers--along with a runoff in corporate trust
fees--constrained revenue by about 2%.
Last week, rival Northern Trust Corp. also reported
investment-management services fees that were hurt by low interest
rates. Northern Trust Chief Financial Officer Michael O'Grady told
The Wall Street Journal that the rates have driven the bank's fee
waivers to the highest level the company has seen in recent
years.
In response to the sluggish revenue environment, trust banks
have been focused on tightening expenses. BNY Mellon on Tuesday
said it is consolidating its office space, which would lead to a
net reduction in New York City of about 700,000 square feet. BNY
Mellon plans to sell the headquarters it has resided in since 2007,
located at number one Wall Street in New York City. The firm will
move to a new location, which it said it hasn't completed yet. It
expects the sale, and any associated gain, to occur in the second
or third quarter.
BNY Mellon reported its noninterest expense dropped 3.1% from a
year earlier to $2.74 billion, driven by reductions in expenses for
occupancy and amortization among other items. "We're taking
aggressive action in virtually every expense category," said Mr.
Hassell. He said BNY Mellon's regulatory and compliance costs have
"risen substantially and continue to be high," but noted that "now
that we are beginning to gain more clarity on the new rules, the
rate of related expense growth should begin to slow."
The trust bank's assets under management rose 14% to $1.62
trillion compared with a year earlier. Assets under custody and
administration rose 6.1% to $27.9 trillion.
BNY Mellon's investment-services fees were up 2.9%, driven by
strength in asset servicing. Investment-management and performance
fees were up 2.6%, or 5% excluding the impact of money market fee
waivers.
But foreign exchange and so-called "other" trading revenue
tumbled 16% to $136 million. BNY Mellon said it saw lower
volatility during the quarter as well as lower fixed income trading
revenue.
Chief Financial Officer Todd Gibbons on the conference call said
BNY Mellon is "taking a hard look at the investment Securities
book" and will likely reposition this in light of new regulations.
He said securities like commercial mortgage-backed securities will
likely become more attractive to BNY Mellon, while it will hold
less of certain high-quality asset backed securities.
The trust bank's net interest margin--a key measure of lending
profitability--narrowed to 1.05% from 1.11% a year earlier.
BNY Mellon benefited from an $18 million benefit for credit
losses, compared with a benefit of $24 million a year earlier and a
provision of $6 million in the fourth quarter.
Shares of BNY Mellon recently were trading down 24 cents in
early-morning trading.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Michael Calia at michael.calia@wsj.com
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