Bank of New York Hits Estimates, Revenue Drops

  • Reports third-quarter EPS of 53 cents.
  • ROE of 22%.
  • Fee revenue down 4% from Q2, but up 9% year-over-year.

NEW YORK ( TheStreet) -- Bank of New York Mellon ( BK) on Wednesday reported third-quarter net income available to common shareholders of $651 million, or 53 cents a share, matching the consensus earnings estimate among analysts polled by Thomson Reuters.

The results compared to net income available to common shareholders of $735 million, or 59 cents a share in the second quarter, and $622 million, or 51 cents a share, in the third quarter of 2010.

CEO Gerald Hassell -- who gained the title in addition to his former role as the company's president after BNY Mellon's board of directors ousted Robert Kelly in August - said the company achieved year-over-year "revenue and earnings growth as we benefited from new business wins, net long-term asset flows and increased deposits," while also delivering "positive operating leverage despite higher legal and severance costs, and generated a 22 percent return on tangible common equity for the quarter."
Bank of New York CEO Gerald L. Hassell

Total fee and other revenue for the third quarter was $2.89 billion, declining from $3.06 billion in the second quarter, but increasing from $2.67 billion in the third quarter of 2010.

The year-over-year revenue increase reflected the acquisitions of e acquisitions of Global Investment Servicing in July of 2010 and BHF Asset Servicing GmbH in August of last year.

Investment services fees were a bright spot for Bank of New York Mellon, increasing 2% quarter-over-quarter and 11% year-over-year, to $1.8 billion in the third quarter.

Investment management and performance fees totaled $729 million in the third quarter, declining 6% from the second quarter, but rising 5% year-over-year. The third-quarter decline reflected "lower period-end and average equity market values and higher money market fee waivers, partially offset by net new business."

Third-quarter foreign exchange and other revenue totaled $194 million, declining from $222 million the previous quarter, but increasing from $146 million a year earlier. The sequential decline was driven mainly by a "$40 million net impact of wider credit spreads on the credit valuation adjustment."

Third-quarter net interest revenue was $775 million, increasing from $731 million the previous quarter and $718 million a year earlier, with the "6% sequential increase in net interest revenue... primarily driven by growth in client deposits which were invested in short-term, low-yielding assets, and the increase in the securities portfolio."

Bank of New York Mellon's Sept. 30 ratio of Tier 1 common equity to risk-weighted assets was a strong 12.5%, declining from 12.6% the previous quarter. Under Basel III guidelines, the Tier 1 common equity ratio was 6.6%, which was the same as the previous quarter.

The company repurchased 20.4 million common shares during the third quarter.

Bank of New York's shares were down 34% through Tuesday's close at $19.77. Based on a 13-cent quarterly payout, the shares had a dividend yield of 2.63%.

Out of 18 analysts covering the company, 12 rated the shares a buy, while five analysts had neutral ratings and one analyst recommended selling the shares. The median 12-month price target among the analysts was $28, implying 45% upside for the shares.

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

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 TheStreet.com 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.

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