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BNY Mellon Profits Off 37% on Lawsuit Costs, but Pershing Is a Bright Spot

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Bank of New York Mellon (BK) announced Wednesday that bank profits fell 37% in the second quarter on litigation costs for an investor lawsuit, but the bank’s Clearing Service unit, which includes the Pershing Advisor Services custody business for RIAs, helped offset that loss with a 6% rise in revenue.

BNY Mellon reported Q2 2012 profits of $466 million, or 39 cents per share, versus earnings per share of 59 cents, totaling $735 million, a year ago. But including the $212 million litigation charge, earnings were only 18 cents a share. Also contributing to the fall-off in profits were lower transaction volumes and lower interest rates.

Higher fees at Pershing helped push clearing services revenue up to $309 million for the quarter ended June 30 versus revenues of $303 million for the first quarter, up 2%, and $292 million a year ago, up 6%.

Click for more of AdvisorOne's 2Q 2012 earnings coverage.Overall investment services fees totaled $1.7 billion, with the 2% quarter-over-quarter increase primarily due to higher clearing services fees, higher depositary receipts revenue, net new business and seasonally higher securities lending revenue, which were partially offset by lower equity market values and transaction volumes.

Assets under custody and administration totaled a record $27.1 trillion as of June 30, 3% higher versus last year and 2% higher versus Q1.

The results were well below analysts’ forecasts, largely because the estimates didn’t include the litigation charge, wrote Liz Moyer and Victoria Stilwell in a Dow Jones Newswires report. They noted that analysts polled by Thomson Reuters had estimated per-share earnings of 53 cents. BNY Mellon reported earlier this month that it would take a $350 million pretax charge to settle a lawsuit over the collapse of a $27 billion Sigma Finance Corp. structured vehicle.

The bank’s stock was relatively unchanged in trading on Wednesday, opening at $21.62 per share after Tuesday’s close of $21.72. With the day’s high at $22.37 and its low at $21.47, BK flattened out by midafternoon and was trading around $21.72.

Chairman, President and CEO Gerald Hassell said in a statement that BNY Mellon was “able to put significant litigation behind us with no material impact on our capital,” and credited the growth of investment management and investment services fees as reflecting the bank’s strong business model.

“We are delivering on our operational excellence initiatives, investing for future growth and positioning our businesses to deliver the full breadth of our global capabilities,” Hassell said. “Our strengthened capital positions us as a preferred counterparty, and provides us greater flexibility for ongoing investment while continuing to return capital to shareholders.”

Last quarter, BNY Mellon’s profits were nipped by allegations that it overcharged clients for currency trades.

Read more coverage of the Q2 2012 earnings season at AdvisorOne.