2010 Q4 Earnings: BNY Mellon Misses Expectations; Pershing Fees Rise

Bank sees record AUM at $1.7 trillion; asset and wealth fees rise 15%

Bank of New York Mellon Corp. (BK) on Wednesday reported fourth-quarter 2010 profits of $0.55 per share, just missing analysts’ expectations for earnings per share of $0.57. The bank’s Pershing LLC unit for broker-dealers and advisors saw fee revenues rise an impressive 18%, though profits fell 16% for the year.

New York-based BNY Mellon reported income of $690 million versus $712 million, or $0.59 per common share, in the fourth quarter of 2009 and $625 million, or $0.51 per common share, in the third quarter of 2010. The stock’s annual profits of $2.06 per share in 2010 showed a clear improvement over 2009’s loss of $1.16 per share.

Total revenue stood at $3.8 billion, up 14% year over year and up 10% sequentially.  Fee revenue totaled $2.97 billion, up 12% for the quarter and up 16% for the full year.

Assets under management (AUM) came to $1.17 trillion at Dec. 31, an increase of 5% compared with the prior year and 3% for the quarter. Both increases reflected improved market values and new business.  In addition, the bank’s asset management unit reported a 15% rise in fee revenues.

Pershing Fees Rise as Profits Fall

BNY Mellon’s Pershing subsidiary—which providesclearing, financing and custody services for broker-dealers and registered investment advisors—saw a year-over-year 18% rise in total fee and other revenues, to $312 million compared with $264 million in the fourth quarter of 2009. However, profits for the unit were off 16% for the year, at $89 million in fourth-quarter 2009 versus $106 million in 2010.

“The year-over-year increase resulted from the impact of the Global Investment Servicing acquisition, strong growth in mutual fund assets and positions, higher market values and new business, including the first phase of the conversion of a large global wealth management firm,” according to BNY Mellon’s quarterly earnings review.

In 2010, BNY Mellon closed on an acquisition of PNC's Global Investment Servicing (GIS) business, which is a transfer agency but also houses Albridge Solutions, the data aggregation company. The acquisition adds approximately

$850 billion of funds under administration, nearly $460 billion of custody assets, and around 4,400 employees, based mostly in Philadelphia, Boston and Wilmington, Del.

However, Pershing’s expenses increased 27% compared to 4Q09—largely due to the impact of the GIS acquisition.

“The year-over-year [increase] resulted from the full-year impact of adjusting compensation to market levels and from new business conversions, including the first phase of the conversion of a large global wealth management firm,” the earnings review said. “We expect to complete the final phase of this conversion in the first quarter of 2011, and that the revenue related to this new business will exceed expenses in the second quarter of 2011.”

Bank Sees Record AUM

Despite BNY Mellon’s quarterly earnings miss, the parent company reported record levels of assets under management, at $1.17 trillion, and assets under custody or administration, at $25.0 trillion. These figures reflected the impact of higher equity markets and new business. The bank’s weakness came from the decline in the fixed income markets and the relative strength of the U.S. dollar.

"We delivered 12% growth in fee revenue this quarter, reflecting improving markets, the underlying strength of our business model and continued investment in our businesses,” said Robert P. Kelly, chairman and chief executive officer of BNY Mellon, in a statement. “Asset quality was exceptionally strong throughout the year and our regulatory capital ratios grew, reflecting our strong capital generation.”

BNY Mellon’s asset management unit reported a 15% rise in fee revenues, at $689 million, versus $600 million in Q4 2009, due to a 6% annual rise in mutual fund revenues and a 25% rise in institutional client revenue. A quarter-over-quarter rise of 17% reflected seasonally higher performance fees, improved equity market values and net new business. Profits were up 12% for the year and 60% for the quarter, at $181 million.

The unit, which provides services through asset management boutiques to both institutional and individual investors, saw $9 billion of long-term inflows, lower than the $13 billion reported for all of 2009, and $6 billion of money market inflows, a definite improvement over the $22 billion loss reported a year ago.

Wealth management, which includes estate planning and private banking for high net worth individuals and foundations, saw a profit loss of 2% for the year and 13% for the quarter, at $46 million of income before taxes. Total revenue including fees rose by 7% for the year and 4% for the quarter to $211 million.

Assets under custody and administration amounted to $25.0 trillion at Dec. 31, an increase of 12% compared with the prior year, which primarily reflected the acquisitions of Global Investment Servicing and BHF Asset Servicing GmbH.

Read about BNY Mellon’s Q3 2010 earning and Pershing’s performance at AdvisorOne.com.

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

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