Trust Banks Take It on the Chin
Trust banks stocks were weak, with Bank of New York Mellon ( BK) down 3% to close at $26.04, and shares of Northern Trust ( NTRS) sliding 6% to close at $49.78. Bank of New York met analysts' expectations, reporting fourth-quarter EPS of 53 cents, declining from 61 cents a share in the third quarter, bur increasing from 42 cents a share, in the fourth quarter of 2011. The sequential earnings decline reflected lower interest revenue, mainly from "lower LIBOR rates, lower yields on the reinvestment of securities and lower accretion, partially offset by higher interest-earning assets driven by higher deposit levels." Investment management and performance fees rose 9% sequentially and 17% year-over-year to $853 million. Bank of New York said that "both increases were impacted by the acquisition of the remaining 50% interest in the West LB Mellon Asset Management joint venture, subsequently renamed Meriten Investment Management," but that excluding the joint venture, "investment management and performance fees increased 15% year-over-year and 8% sequentially driven by higher market values, net new business and higher performance fees," in addition to lower waivers of money market fees. Third-quarter operating revenue totaled $3.606 billion, declining from $3.650 billion the previous quarter, but increasing from $2.426 billion a year earlier. Jefferies analyst Ken Usdin rates Bank of New York Mellon a "Hold," with a $27 price target, calling the fourth quarter a "messy quarter overall and although core EPS is below $0.50/share, core revenues showed up stronger than expected (asset management/servicing most notably), which bodes well for forward estimates." The analyst added that "bears will point to $50mm of sec. gains as low quality, but they could prove sticky if mgmt. opts to harvest unrealized gains within the inv. portfolio."