Bank of New York Profit Misses Estimates

The bank increased its dominant position in securities custody and administration.
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Bank of New York Mellon

(BK) - Get Report

Tuesday reported third-quarter earnings from continuing operations of $625 million, or 51 cents a share, a swing from a year-earlier loss of $2.4 billion, or $2.04 a share, when the holding company booked $4.8 billion in securities losses.

The third-quarter results missed the average estimate among analysts polled by Thomson Reuters of 54 cents a share.

Profits declined from second-quarter earnings from continuing operations of $668 million, or 55 cents a share.

The bank -- which focuses on asset management, wealth management, custody and other fee-based services -- reported that assets under management had increased 18% year over year to $1.14 trillion as of Sept. 30. Assets under custody/administration increased 10% from a year earlier to $24.4 trillion.

During the third quarter, Bank of New York Mellon completed its acquisition of

PNC Financial's

(PNC) - Get Report

Global Investment Servicing unit, as well as BHF Asset Servicing.

CEO Robert Kelly said the acquisitions "combined with the underlying resilience of our business model, helped to offset weakness in the capital markets," adding that "the strength of our balance sheet and meaningful capital generation position us well to meet the proposed new capital standards."

Securities servicing fees totaled $1.5 billion during the third quarter, increasing 20% year over year and reflecting the acquisitions. Asset and wealth management fees totaled an adjusted $716 million, increasing 8% from last year. Those increases were partially offset by declines in foreign exchange revenue and investment income.

Bank of New York Mellon's third-quarter return on common equity was 7.8%, declining from 8.8% the previous quarter. The company was well-capitalized, reporting a Tier 1 capital ratio of 12.2% as of Sept. 30, compared to 13.5% the previous quarter and 11.4% a year earlier. The tangible common equity ratio was 5.3%, compared to 6.3% in June and 5.2% in September 2009. While this is a lower tangible common equity ratio than many large banks, the company has limited credit exposure because of its small loan portfolio.

Bank of New York's shares closed at $26.62 Monday, down 4% for 2010 and 1% for one year.P/>


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Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., 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.