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Bank of New York Mellon

(BK) - Get Bank of New York Mellon Corporation Report

Tuesday reported a third-quarter loss of $2.46 billion, or $2.05 a share, as it restructured its securities portfolio.

The loss sprang from the New York holding company's decision to lower balance sheet risk by restructuring $8.5 billion in securities and selling $3.6 billion in lower-rated securities, resulting in $4.8 billion in pretax restructuring charges for the quarter. The bank earned $267 million, or 23 cents a share, in the latest second quarter and $303 million, or 26 cents a share, in the third quarter of 2008.

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On an adjusted basis, Bank of New York earned 54 cents a share in the third quarter of 2009. Analysts surveyed by Thomson Reuters expected net income of 47 cents a share.

CEO Robert Kelly, in a statement, said the bank took advantage of rising prices on fixed income securities by "selling or recognizing losses on a significant portion of our investment securities portfolio," and said the loss didn't significantly affect the company's regulatory capital and would lead to increased net interest revenue in 2010.

While the company's preliminary regulatory tier 1 capital and tier 1 leverage ratios declined to 11.3% and 6.5%, respectively, from 12.5% and 7.5% in June, its tangible common equity ratio increased to 5.2% as of Sept. 30 from 4.8% the previous quarter.

Bank of New York Mellon also announced sales of an additional $2.1 billion in investment securities after Sept. 30 at fair value.

Bank of New York Mellon focuses on earning fee revenue from asset management and custody services. Total assets under custody and administration totaled $22.1 trillion as of Sept. 30, down slightly from a year earlier. Excluding the investment securities charges and a third-quarter 2008 tax settlement charge, third-quarter fee revenue was $2.6 billion, up from $2.5 billion in the second quarter but down 15% from $3.1 billion a year earlier.

The year-over-year decline in fee revenue reflected an 18% decline in asset and wealth management fees, as well as declines in securities servicing fees and revenue from foreign exchange and other trading, amid the general market upheaval over the past year. The revenue declines were partially offset by lowered expenses and increased investment income and net interest income.

Nonperforming loans increased sharply during the quarter to 1.5% of total loans as of Sept. 30, from 1% in June. The company charged off $77 million in problem loans during the quarter and looked ahead to a further decline in asset quality by making a $147 million provision for loan loss reserves, up from $61 million last quarter.

Despite the decline in credit quality, the $555 million in total nonperforming loans represented only 0.27% of the company's total assets.

Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.