Last updated: January 16, 2013 10:21 pm

BNY Mellon profits boosted by fee income

Bank of New York Mellon reported a 23 per cent jump in fourth-quarter profits, bolstered by gains from investment management fees that helped offset pressure from low interest rates in the US and Europe.

But shares in the world’s largest custodian bank closed 2.8 per cent lower in New York on Wednesday as analysts said the mixed results for the final three months of last year suggested there was only modest room for further profit expansion.

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The bank’s results were aided by a 17 per cent gain in revenues from its investment management unit which climbed to $853m, lifted by rising equity markets, higher fees and gains from an acquisition. Quarterly revenue rose 2 per cent to $3.6bn in the period despite weakness in other businesses.

Net income rose to $622m, up from $505m a year ago. Earnings of 53 cents a share were in line with analysts’ forecasts and improved from 42 cents in the previous period. The gain included a 3 cent credit because of an adjustment in the way the bank calculates losses from its legacy mortgage portfolio.

“We’re grinding out a modest amount of revenue growth in a tough environment,” said Todd Gibbons, the bank’s chief financial officer.

“The good news is that if we see any normalisation around rates, trading activity and volumes, we’re well positioned for a pick-up,” he said, adding that the bank was not expecting market conditions to improve in 2013.

Custodian banks such as Bank of New York Mellon safeguard investors’ assets and provide basic services including clearing payments and settling transactions.

Performance for companies in the sector has been hindered by record low borrowing rates in the US and Europe. Revenues from net interest fell 7 per cent to $725m. The company’s net interest margin slipped from 1.2 per cent in the third quarter to 1.09 per cent.

BNY Mellon blamed the declines on the elimination of interest on European Central Bank deposits and lower yields on the reinvestment of securities.

Revenue from trading currencies also fell 42 per cent to $106m as lower volatility and falling volumes took their toll.

BNY Mellon finished last year with $26.7tn of assets under custody, a 9 per cent increase from 2011.

In the fourth quarter, the bank became caught in a continuing legal spat between Argentina and its creditors, stemming from the country’s 2001 default. As trustee for Argentina’s restructured debt, BNY Mellon is charged with dispensing payments from the country to investors in the exchanged bonds.

Also on Wednesday, shares in Northern Trust Corp, another large custody bank, fell 5.7 per cent as it said net income rose 29 per cent to $167.7m. However, earnings of 69 cents a share for the fourth quarter fell 6 cents shy of analysts’ forecasts. Both foreign exchange trading income and net interest income declined in the fourth quarter, the company said.

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