July 19, 2011

Q2 Earnings: BNY Mellon Profits Rise Nearly 12% as Pershing Revenue Stays Flat

Asset management firm reports EPS of $0.59, exceeding analysts’ expectations

Bank of New York Mellon Corp. (BK) reported second-quarter 2011 earnings on Tuesday and slightly beat expectations with earnings per share of $0.59 compared with analysts’ consensus EPS of $0.56. Also on Tuesday, the asset manager and custody bank declared a stock dividend of $0.13 per share.

Clearing services revenue from the Pershing unit, which oversees RIA custody, was $290 million in the second quarter, flat against the $290 million it reported in the first quarter but up 21% from the $240 million reported a year ago at this time.

Profits for the parent company rose 11.7% to $735 million in net income versus $658 million in Q2 2010, BNY Mellon’s earnings release showed. Q1 2011 net income totaled $625 million. The company’s fee revenue and stock market gains both helped bring the firm’s assets under custody and management to record levels despite stubbornly low interest rates.

Assets under management rose 22%, with $32 billion of net flows in Q2, while assets under custody and administration rose 21%. This strong performance is an improvement over last quarter, when BNY Mellon missed estimates despite Pershing’s strong results.

“Fees and net interest revenue grew nicely over both the prior year and quarter, leading to EPS growth of 9% and 18%, respectively,” said Robert P. Kelly, chairman and chief executive officer of BNY Mellon, in a statement. “Expense growth remained high due in part to legal and regulatory costs. We are taking additional actions to reduce expenses.”

As a sign of BNY Mellon’s strength, no provision was made in Q2 for credit losses in the latest period, compared with a reserve of $20 million a year ago. BNY Mellon is the world’s largest custody bank by assets.

The year-over-year increase in Pershing’s clearing services revenue reflected the impact of its acquisition of PNC’s Global Investment Servicing acquisition, growth in mutual fund assets and positions and new business. The acquisition, which closed in Q3 2010, added approximately $850 billion of funds under administration, nearly $460 billion of custody assets and about 4,400 employees, based mostly in Philadelphia, Boston and Wilmington, Del.

However, Pershing’s revenue increase was partially offset by lower transaction volumes and higher money market fee waivers.

In the investment management unit, revenue from wealth management fell 1% in the second quarter, to $163 million versus $164 million in the first quarter, though it rose 7% year-over-year from $153 million in Q2 2010.

Investment management includes services to institutional and retail investors, as well as investment management, wealth and estate planning and private banking solutions to high net worth individuals and families, and foundations and endowments.

Performance fees in investment management stood at $18 million for the quarter, down 5% for the year but up 6% for the quarter.

For more Q2 news, go to AdvisorOne’s Earnings Calendar for the Finance Sector.

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