Bank of New York Mellon Corp, the world's largest custody bank, said second-quarter profit rose 79 per cent as a stock-market rally boosted assets and fees for overseeing them.
Net income rose to $833 million, or 71 cents a share, from $466 million, or 39 cents, a year earlier, when costs from a legal settlement hurt earnings, the New York-based bank said on Wednesday in a statement. Profit in this year's second quarter included an after-tax gain of $109 million, or 9 cents a share, related to an equity investment. BNY Mellon was expected to earn 59 cents a share, according to the average estimate of 15 analysts surveyed by Bloomberg.
BNY Mellon has struggled to boost profits over the past two years as near-zero interest rates have held down revenues from securities lending, cut yields on its investment portfolio and forced it to waive fees on money funds. BNY Mellon's net income is expected to fall to $1.9 billion in 2013, according to the average of 12 analysts surveyed by Bloomberg, the lowest since 2009.
"Investors need to see some revenue and earnings growth from this bank before the stock gets any attention," Marty Mosby, an analyst with Guggenheim Securities LLC, said in a telephone interview before earnings were released.
BNY Mellon shares gained 18 per cent this year before today, trailing the performance of competitors Boston-based State Street Corp, up 46 per cent, and Chicago-based Northern Trust Corp., which rose 21 per cent.
Capital requirements
Custody banks keep records, track performance and lend securities for institutional investors. BNY Mellon also manages investments for individuals and institutions. The MSCI All Country World Index rose 14 per cent in the 12 months ended June 28, and fell 1.2 per cent in the second quarter. The Standard & Poor's 500 Index rose 18 per cent in the 12 months ended June 28, and increased 2.4 per cent in the second quarter.
BNY Mellon was one of eight large US banks told by regulators on July 9 they needed to meet higher capital requirements by 2018. The firms would need to retain capital equal to at least five per cent of assets, and their banking units would have to hold a minimum of six per cent, under the proposal.
A July 10 research note from Goldman Sachs Group Inc. estimated that BNY Mellon would fall short under both measures. The bank could easily come into compliance with the rules by selling some of the securities on its balance sheet, Richard Bove, an analyst with Rafferty Capital Markets LLC, said in a telephone interview.
Chief Executive Officer Gerald Hassell is focused on increasing the assets the bank oversees, cutting costs and raising prices to existing customers to combat the impact of lower rates. In 2011, Hassell trimmed jobs and set a target to save as much as $700 million by 2015 through operational improvements.
The bank has tried with mixed results to raise prices. Timothy Keaney, chief executive officer of investment services, said at an investor conference in September that BNY Mellon had been able to negotiate higher prices with some of its smaller customers.
"The bad news is on the strategic client base," he said. "We do not have any pricing power today. These are huge clients."
Net income rose to $833 million, or 71 cents a share, from $466 million, or 39 cents, a year earlier, when costs from a legal settlement hurt earnings, the New York-based bank said on Wednesday in a statement. Profit in this year's second quarter included an after-tax gain of $109 million, or 9 cents a share, related to an equity investment. BNY Mellon was expected to earn 59 cents a share, according to the average estimate of 15 analysts surveyed by Bloomberg.
BNY Mellon has struggled to boost profits over the past two years as near-zero interest rates have held down revenues from securities lending, cut yields on its investment portfolio and forced it to waive fees on money funds. BNY Mellon's net income is expected to fall to $1.9 billion in 2013, according to the average of 12 analysts surveyed by Bloomberg, the lowest since 2009.
"Investors need to see some revenue and earnings growth from this bank before the stock gets any attention," Marty Mosby, an analyst with Guggenheim Securities LLC, said in a telephone interview before earnings were released.
BNY Mellon shares gained 18 per cent this year before today, trailing the performance of competitors Boston-based State Street Corp, up 46 per cent, and Chicago-based Northern Trust Corp., which rose 21 per cent.
Capital requirements
Custody banks keep records, track performance and lend securities for institutional investors. BNY Mellon also manages investments for individuals and institutions. The MSCI All Country World Index rose 14 per cent in the 12 months ended June 28, and fell 1.2 per cent in the second quarter. The Standard & Poor's 500 Index rose 18 per cent in the 12 months ended June 28, and increased 2.4 per cent in the second quarter.
BNY Mellon was one of eight large US banks told by regulators on July 9 they needed to meet higher capital requirements by 2018. The firms would need to retain capital equal to at least five per cent of assets, and their banking units would have to hold a minimum of six per cent, under the proposal.
A July 10 research note from Goldman Sachs Group Inc. estimated that BNY Mellon would fall short under both measures. The bank could easily come into compliance with the rules by selling some of the securities on its balance sheet, Richard Bove, an analyst with Rafferty Capital Markets LLC, said in a telephone interview.
Chief Executive Officer Gerald Hassell is focused on increasing the assets the bank oversees, cutting costs and raising prices to existing customers to combat the impact of lower rates. In 2011, Hassell trimmed jobs and set a target to save as much as $700 million by 2015 through operational improvements.
The bank has tried with mixed results to raise prices. Timothy Keaney, chief executive officer of investment services, said at an investor conference in September that BNY Mellon had been able to negotiate higher prices with some of its smaller customers.
"The bad news is on the strategic client base," he said. "We do not have any pricing power today. These are huge clients."