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Bank of New York Mellon Beats as Fee Revenue Grows (Update 1)

  • Third-quarter EPS of 61 cents, beating consensus estimate of 54 cents.
  • Total revenue of $3.675 billion also beats.
  • Investment management fees rise 7% year-over-year

Updated with comments from Jefferies analyst Ken Usdin.

NEW YORK (TheStreet) -- Bank of New York Mellon (BK) on Wednesday reported a 7% year-over-year increase in management fees.

The trust and custody bank announced third-quarter net income applicable to common shareholders of $720 million, or 61 cents a share, soundly beating the consensus estimate of a 54-cent profit, among analysts polled by Thomson Reuters.

Earnings increased from $466 million, or 39 cents a share, during the second quarter (which included a litigation charge of $212 after tax, or 18 cents a share), and $651 million, or 53 cents a share, during the third quarter of 2011.

Total revenue for the third quarter was $3.675 billion, beating the consensus estimate of $3.596 billion, and increasing from $3.579 billion the previous quarter, and $3.683 billion, a year earlier.

Investment services fees totaled $1.7 billion in the third quarter, down 1% from the second quarter, and down 6% from the third quarter of 2011. The company said "the year-over-year decrease was primarily driven by lower Depositary Receipts revenue, the impact of the sale of the Shareowner Services business in the fourth quarter of 2011 and lower Corporate Trust fees, partially offset by higher asset servicing and securities lending revenue."

A third-quarter highlight for Bank of New York Mellon was $779 million in investment management and performance fee income, increasing 2% sequentially and 7% year-over-year, "driven by higher market values and net new business."

Net interest income totaled $749 million during the third quarter, increasing from $734 million the previous quarter, but declining from $775 a year earlier. The net interest margin - the difference between the average yield on loans and investments and the average cost for deposits and borrowings - continued to narrow, to 1.20% in the third quarter, from 1.25% in the second quarter, and 1.30% in the third quarter of 2011. The margin squeeze is in line with most of the industry, with the Federal Reserve keeping its target federal funds rate in a range of zero to 0.25% since the end of 2008, while the central bank in September significantly increased its purchases of long-term mortgage-backed securities, in an effort to keep long-term rates at historically low levels.

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