BNY Mellon Outpaces by a Sliver - Analyst Blog
October 18 2012 - 2:34AM
Zacks
The Bank of New York Mellon Corporation’s (BK)
third quarter 2012 earnings of 57 cents per share came in 3 cents
ahead of the Zacks Consensus Estimate. Moreover, this is at par
with the earnings of 57 cents reported in the prior quarter.
Results benefited from growth in net interest revenue and fee
income. Yet, slightly higher operating expenses were a dampener.
Moreover, asset quality continued to show improvement and capital
ratios remained healthy. Further, BNY Mellon’s asset position also
improved.
After taking into consideration certain non-recurring items, net
income applicable to common shareholders stood at $720 million or
61 cents per share. This compares favorably with net income of $466
million or 39 cents per share in the previous quarter.
Performance in Detail
BNY Mellon’s total revenue of $3.65 billion was up 2% sequentially,
reflecting higher net interest income and fee revenue. Moreover,
total revenue beat the Zacks Consensus Estimate of $3.59
billion.
Fully tax equivalent net-interest income was $749 million, up 2%
from $734 million in the previous quarter. The rise was primarily
due to higher average interest-earning assets, partially offset by
the removal of interest on European Central Bank (ECB) deposits.
However, net interest margin fell 5 basis points sequentially to
1.20%. The decrease was mainly attributable to lower reinvestment
yields, the elimination of interest on ECB deposits, lower
accretion and growth in customer deposits.
Fee revenue stood at $2.88 million, increasing 2% from $2.83
million in the prior quarter. The surge reflects growth in
investment services fees, foreign exchange and other trading
revenue and financing-related fees. These positives were partly
offset by lower investment management and performance fees.
Excluding restructuring charges, M&I expenses and amortization
of intangible assets as well as direct expense related to
Shareowner Services, non-interest expense increased marginally from
$2.57 billion in the last quarter to $2.58 billion. The slight rise
primarily reflects higher staff expenses, distribution and
servicing expenses and net occupancy costs, partly mitigated by
lower business development expenses.
Asset Quality
BNY Mellon’s credit quality continued to improve in the reported
quarter. Provision for credit losses was a benefit of $5 million in
the quarter compared with a benefit of $19 million in the prior
quarter.
Nonperforming assets declined from $294 million in the previous
quarter and $344 million in the prior-year quarter to $274 million.
Likewise, allowance for loan losses fell from $467 million in the
prior quarter and $498 million in the previous-year quarter to $456
million in the reported quarter.
Assets Position
Assets under management totaled $1.4 trillion as of September 30,
2012, up 5% sequentially and 13% year over year. Both rises were
driven by higher market values and net inflows.
Assets under custody and administration totaled $27.9 trillion as
of September 30, 2012, up 3% sequentially and 8% year over year.
Both increases primarily reflect net new business and higher market
values.
Capital Position
BNY Mellon’s capital ratios remained stable during the quarter. As
of September 30, 2012, Tier 1 capital ratio was 15.3% compared with
14.7% as of June 30, 2012 and 14.0% as September 30, 2011.
The estimated Basel III Tier 1 common equity ratio increased to
9.3% compared with 8.7% in the prior quarter. The rise reflects
earnings retention and an augmentation in the value of the
investment portfolio, partially mitigated by higher risk-weighted
assets.
Share Repurchase
In March, BNY Mellon, after receiving approval for its capital plan
from the Federal Reserve, announced a new share repurchase program,
authorizing the purchase of up to $1.16 billion of stock through
the first quarter of 2013. During the reported quarter, the company
repurchased 13.4 million shares for $288 million.
Dividend Update
Concurrent with the earnings release, BNY Mellon announced a
quarterly cash dividend of 13 cents per share. The dividend will be
paid on November 7 to shareholders of record at the close of
business on October 29.
Peer Performance
Similar to BNY Mellon, State Street Corporation’s
(STT) third quarter earnings marginally outpaced the Zacks
Consensus Estimate. Better-than-expected results benefited from
improvement in net interest revenue and fall in operating expenses.
Moreover, capital ratios and asset position remained robust during
the quarter. However, decline in fee revenue was the primary
dampener.
Our Viewpoint
We believe BNY Mellon’s recent capital deployment activity will
enhance investors’ confidence in the stock. Further, the top line
is expected to benefit from various restructuring initiatives.
However, a low interest rate environment and changing regulatory
landscape are expected to slightly dent its revenue growth in the
upcoming quarters. Also, higher operating expenses are a major
cause of concern.
BNY Mellon currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating. Also, in the absence of any significant
positive or negative catalyst, we maintain a long-term Neutral
recommendation on the stock.
BANK OF NY MELL (BK): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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