BNY Mellon's Earnings Miss, Revs Beat - Analyst Blog
April 17 2013 - 8:46AM
Zacks
The Bank of New York Mellon Corporation’s (BK)
first-quarter 2013 adjusted earnings of 50 cents per share lagged
the Zacks Consensus Estimate by 2 cents. Also, this also compared
unfavorably with prior quarter earnings of 53 cents.
After taking in to consideration a charge of $854 million or 73
cents per share related to the U.S. Tax Court’s disallowance of
certain foreign tax credits, BNY Mellon reported a net loss,
applicable to common shareholders, of $266 million or 23 cents per
share.
Lower-than-expected results were mainly due to a rise in operating
expenses and lower net interest income, partially offset by almost
stable fee income. However, asset quality continued to show
improvement while capital ratios remained healthy. Further, BNY
Mellon’s asset position continued to improve.
Performance in Detail
BNY Mellon’s total revenue came in at $3.60 billion, almost in line
with the previous quarter. However, total revenue was ahead of the
Zacks Consensus Estimate of $3.58 billion.
Fully tax equivalent net-interest revenues of $719 million inched
down approximately 1% from $725 million in the previous quarter.
The fall primarily reflects lower number of days in the reported
quarter. However, net interest margin increased 2 basis points
(bps) sequentially to 1.11%.
Total fee revenue stood at $2.84 billion, flat on a sequential
basis. Almost stable fee revenue reflects increases in investment
services fees and foreign exchange and other trading revenues.
These positives were offset by declines in investment management
and performance fees, distribution and servicing income along with
lower financing-related fees and investment and other income.
Excluding restructuring charges, M&I expenses and amortization
of intangible assets as well as direct expense related to
Shareowner Services, non-interest expense was $2.70 billion, up 1%
sequentially. The rise primarily reflects higher staff expenses and
net occupancy costs. However, these were partly mitigated by lower
professional, legal and other purchased services costs, software
equipment costs as well as business development expenses.
Asset Quality
BNY Mellon’s credit quality continued to improve in the reported
quarter. Nonperforming assets declined 6% sequentially to $234
million.
Likewise, allowance for loan losses fell 7% from the prior quarter
to $358 million in the reported quarter. Further, provision for
credit losses was a benefit of $24 million in the quarter compared
with a benefit of $61 million in the prior quarter.
Asset Position
Assets under management totaled $1.4 trillion as of Mar 31, 2013,
up 9% sequentially driven by higher market values and net new
business. Assets under custody and administration totaled $26.3
trillion as of Mar 31, 2013, almost unchanged sequentially.
Improved market values were offset by the impact of foreign
currency changes, while net new business was flat.
Capital Position
Though BNY Mellon’s capital ratios deteriorated during the quarter,
they remained strong. As of Mar 31, 2013, Tier 1 capital ratio was
13.6%, down from 15.0% as of Dec 31, 2012. Similarly, Tier 1 total
capital ratio was 14.7%, down from 16.3% as of Dec 31, 2012. The
primary reason behind the decline was the implementation of Basel
2.5, which led to nearly 35-40 bps declines in capital ratios.
The estimated Basel III Tier 1 common equity ratio increased to
9.4% compared with 9.8% in the prior quarter.
Capital Deployment Activities
In its latest capital plan, BNY Mellon has received the Federal
Reserve’s approval for $1.35 billion worth of share repurchases
through the first quarter of 2014. Also, the company hiked its
quarterly dividend by 15% to 15 cents per share. This dividend will
be paid on May 7 to stockholders of record as of Apr 29.
During the reported quarter, BNY Mellon repurchased shares worth
$211 million.
Our Viewpoint
We believe that BNY Mellon’s capital deployment activity will
enhance investor 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.
Among other major regional banks, BB&T
Corporation (BBT) and KeyCorp (KEY) are
scheduled to announce results on Apr 18 and State Street
Corporation (STT) will report on Apr 19.
BNY Mellon retains a Zacks Rank #3 (Hold).
BB&T CORP (BBT): Free Stock Analysis Report
BANK OF NY MELL (BK): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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