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BNY Mellon Is Buy Despite Soft Earnings

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- BNY Mellon (BK) failed to impress investors with its first quarter earnings, which were slightly below expectations. This was evidenced by the fact that the bank's shares dropped the most among banks over trading on Wednesday. The world's largest custody bank ended the quarter with revenue of $3.6 billion -- similar to the figures for Q4 2011 and Q1 2011. The bank's net income figure for the quarter was $631 million.

Despite the soft earnings, we have updated our price estimate for BNY Mellon from $26 to $27 nearly 20% above the current market price. We believe that this premium is largely due to the weak short-term outlook for global custody banking. The bank's foreign-exchange related lawsuits are also a bitter pill for investors to swallow.

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See our full analysis for BNY Mellon.

Asset Portfolio Size at Record Level

Over the quarter, BNY Mellon bulked up its asset portfolio to record levels. The bank's assets under custody and administration rose to $26.6 trillion, from $25.8 trillion at the end of 2011. The previous record level was witnessed at the end of the second quarter of 2011, when the bank held assets of $26.3 trillion. This is noteworthy considering the fact that BNY Mellon's asset-servicing business is its most valuable division, responsible for a little over 30% of its value according to our analysis.

BNY Mellon also reported healthy growth in its clearing services fees. Securities clearing roped in $303 million for this quarter -- nearly 10% more than the amount for the previous quarter and just above 4% the amount a year ago. The bank attributes this growth to an overall increase in business and an increase in mutual fund assets and retirement accounts.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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