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BNY Mellon Follows Bad Revenue Trend but Operating Earnings Top Views (Update 1)

Stocks in this article: BKBAC

  • Excluding 22-cent tax benefit, third-quarter EPS comes in at 60 cents.
  • Operating EPS beats consensus estimate of 58 cents.
  • Revenue down 7% from second quarter but up 3% year over year.

Updated from 7:20 a.m. ET with early market action and comment from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) -- Bank of New York Mellon (BK) on Wednesday followed the industry trend by reporting a sequential revenue decline, but the company's earnings rose significantly because of a tax benefit.

The trust and custody bank reported third-quarter net income available to common shareholders of $967 million, or 82 cents a share, compared to $833 million, or 71 cents a share in the second quarter, and $720 million, or 61 cents a share, in the third quarter of 2012.

The third-quarter results soundly beat the consensus estimate of 58 cents a share, among analysts polled by Thomson Reuters.

Total revenue for the third quarter came in at $3.963 billion, down 7% from $4.009 billion the previous quarter, but up 3% from $2.879 billion a year earlier.

Bank of New York's bottom-line earnings were boosted by a "benefit related to the U.S. Tax Court's partial reconsideration of a tax decision," which came to $261 million, or 22 cents a share. Without the tax benefit, third-quarter earnings-per-share would have come in at 60 cents -- still ahead of the consensus EPS estimate.

Investment services fees totaled $1.738 billion in the third quarter, down only slightly from $1.742 billion in the second quarter, as small declines in asset servicing, clearing and treasury services were outweighed by a 10% sequential increase in issuer services fees to $322 million. Investment services fees were up 4% from $1.678 billion in the third quarter of 2012.

Investment management and performance fees totaled $821 million in the third quarter, down 3% from $848 million the previous quarter, but up from $779 million a year earlier. The company's largest revenue decline, on a percentage basis, was in foreign exchange and other trading revenue, which totaled $160 million in the third quarter, down 12% from $207 million in the second quarter, and down 23% from $182 million in the third quarter of 2012.

The sharp decline in trading revenue followed the industry trend reported by JPMorgan Chase (JPM) and Citigroup (C).

Bank of America (BAC) followed suit on Wednesday, reporting that trading account profits declined to $1.266 billion in the third quarter from $1.938 billion the previous quarter and $2.989 billion a year earlier. BAC's noninterest income declined to $11.264 million in the third quarter from $12.178 billion the previous quarter and $12.533 billion a year earlier.

Please see TheStreet's earnings' coverage for plenty of additional detail on Bank of America's $2.5 billion third-quarter profit.

Bank of New York Mellon's assets under management grew 7% sequentially and 13% year over year to $1.53 trillion. Assets under custody or administration grew 5% sequentially but declined 2% from a year earlier to $27.4 trillion.

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