BNY Mellon Income Declines 0.6% on Low Rates, Weak Markets

  • Company says costs to remain flat or decline for rest of 2016
  • Shares of bank decline on the results more than peers

Bank of New York Mellon Corp. said second-quarter profit declined 0.6 percent as weak global stock markets and low interest rates weighed on revenue. The shares fell.

Net income dropped to $825 million or 75 cents a share, from $830 million or 73 cents, a year earlier, when there were more shares outstanding, the company said in a statement Thursday. The results met the average estimate of nine analysts in a Bloomberg survey.

Chief Executive Officer Gerald Hassell, under pressure from activist investors, has been trimming expenses to maintain profit in an environment in which the bank’s revenues declined on a year-over-year basis. Hassell, 64, sold the bank’s headquarters at 1 Wall Street and reduced the real estate his employees occupy. He also streamlined technology operations.

“Their expenses are coming down and they are buying back shares, which means they can still make some progress even with very modest growth in fees,” Marty Mosby, an analyst with Vining Sparks, said in an interview before the earnings were announced.

Shares of BNY Mellon fell 2.5 percent to $39.02 in New York at 9:53 a.m. compared with a decline of 0.4 percent for the 19-member S&P’s index of custody banks and asset managers.

Revenue declined 2.8 percent from the same quarter a year ago, as outflows and market swings reduced assets under management and fees for overseeing them. Assets under custody and administration climbed 3.1 percent to $29.5 trillion, while assets under management dropped 2.1 percent to $1.66 trillion.

Non-interest expenses fell 3.9 percent, reflecting lower costs in almost all categories, the bank said. The company said on the conference call that it expects expenses will be flat to down for the whole year.

Cost Cuts

“Our success in aggressively controlling expenses and executing on our business improvement process helped sustain earnings momentum in a period of market uncertainty,” Hassell said in the statement.

On the call, bank executives said there was further room for trimming expenses by cutting the use of outside vendors and finding ways to automate more tasks. Hassell said the bank had 30 so-called bots, or software programs, in production to perform certain “mind-numbing processes.”

Lackluster global growth has pushed interest rates down around the world, limiting the returns the banks can earn on deposits and forcing them to forgo fees on money-market funds. Based on futures markets, investors now estimate there is less than a 50 percent chance that the Federal Reserve will raise rates again in 2016.

The MSCI All-Country World Index rose 1.2 percent in the second quarter, including reinvested dividends, according to data compiled by Bloomberg.

BlackRock Profit Fell

BNY Mellon said last month it would boost its dividend and buy back stock after the Fed didn’t object to its capital plan. The bank said it would increase its dividend to 19 cents from 17 cents a share, starting as early as the third quarter, subject to board approval. It also said it would buy back as much as $2.7 billion of common stock, contingent in part on the company issuing $750 million of preferred stock.

Northern Trust Corp. on Wednesday reported a 3.2 percent decline in earnings for the second quarter. Last week, BlackRock Inc., the world’s largest money manager, said second-quarter profit fell 3.7 percent as performance fees declined and clients shifted money from stocks to lower-fee fixed income and cash investments.

Custody banks, such as BNY Mellon, Northern Trust Corp. and State Street Corp., keep records, track performance and lend securities for institutional investors. The banks also manage money for individuals and institutions.

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