BNY Mellon Posts First-Quarter Profit on Higher Assets

April 22 (Bloomberg) --- Bank of New York Mellon Corp., the world’s largest custody bank, reported a first-quarter profit after a loss a year ago as rising stock markets lifted assets and fees for overseeing them.

Net income rose to $661 million, or 57 cents a share, compared with a loss of $266 million, or 23 cents a share, in the same period last year that was caused by a tax court decision, the New York-based bank said today in a statement. Analysts had expected a profit of 53 cents a share.

Assets under custody and administration rose 1.1 percent from the prior quarter to $27.9 trillion, lifting fees and helping offset the impact of low interest rates, which erodes revenue from lending. Chief Executive Officer Gerald Hassell is cutting real-estate holdings in New York and reducing the number of computer platforms the bank uses to boost profitability.

“They are still treading water,” Marty Mosby, an analyst with Guggenheim Securities LLC in Hernando, Mississippi, said in a telephone interview. “It is a weak environment for their business.”

Bank of New York Mellon fell less than 0.1 percent to $33.64 at 10:53 am in New York trading. The stock declined 3.7 percent this year, compared with a drop of 5.6 percent for the 18-member Standard & Poor’s index of custody banks and asset managers.

Assets Rise

Assets under management reached $1.62 trillion, up 2.3 percent for the quarter and 14 percent over 12 months. Assets under management were boosted by $21 billion of long-term deposits in the quarter. Clients withdrew $7 billion from short-term vehicles such as money funds.

Fee revenue increased 1.7 percent from a year earlier to $2.86 billion, helped by a 4.1 percent jump in asset-servicing fees. Net interest revenue rose 0.4 percent to $746 million, after provisions for credit losses. Non-interest expenses fell 3.1 percent.

Hassell, on a conference call, said the bank was considering charging clients for depositing in euros if the European Central Bank decides to cut key interest rates below zero. ECB President Mario Draghi said April 12 that the strengthening of the euro could require further monetary stimulus.

Deposit Fees

BNY Mellon and State Street Corp. (STT), the third-largest custody bank, have previously charged customers to hold deposits of Danish kroner and Swiss francs when central banks in those countries cut interest rates close to or below zero.

The MSCI World Index, which tracks stock markets in the developed world, gained 21 percent, including reinvested dividends, over the past 12 months. Higher stock prices lift fees for servicing and managing client money.

Custody banks keep records, track performance and lend securities for institutional investors. BNY Mellon also manages investments for individuals and institutions.

At the bank’s annual meeting earlier this month, Michael Mayo, at analyst at CLSA Ltd. in New York, said the bank was lagging behind rivals in profitability measures, a criticism he also made in a February research report.

Trailing Peers

“The company has underperformed,” Mayo wrote in the report. On a number of key measures of profitability, including pretax margin, BNY Mellon trails Boston-based State Street, he wrote. Pretax margin is a company’s earnings before tax as a percentage of total revenue.

State Street’s pretax margin was 27.2 percent last year, compared with 24.8 percent for BNY Mellon, according to data compiled by Bloomberg. Over the past three years, State Street shares gained 53 percent compared with 23 percent for BNY Mellon. State Street is scheduled to report earnings April 25.

Hassell, at the annual meeting, said low interest rates hold down revenue from securities lending, cut income from the investment portfolio and force the bank to waive fees on money funds.

“When rates ultimately rise, we will see very positive impact to our earnings,” Hassell said.

Bank of New York Mellon said in December that it plans to sell 1 Wall Street in Manhattan, the Art Deco skyscraper that serves as its corporate headquarters, and has hired brokers to find a smaller amount of space to lease elsewhere. The company said today the sale may happen in the second or third quarter.

To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net Sree Vidya Bhaktavatsalam

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