BNY Mellon Declines as Profit Misses Analysts’ EstimatesCharles Stein
Bank of New York Mellon Corp., the custody bank under pressure from activist investor Trian Fund Management to lift its share price, declined the most in nine months after reporting fourth-quarter earnings that missed analysts’ estimates.
BNY Mellon fell as much as 4.4 percent, the most since April 2, after adjusted earnings of 58 cents a share fell short of the 59-cent average estimate of 16 analysts in a Bloomberg survey. The company reported net income of $807 million for the quarter, an increase of 57 percent from a year earlier. Earnings were boosted by a previously-disclosed tax benefit.
Chief Executive Officer Gerald Hassell has jettisoned assets and cut costs at the world’s largest custody bank to offset the drag caused by low interest rates. The presence of activist investors such as Trian will keep pressure on the bank to do more, said Marty Mosby, an analyst at Vining Sparks in Memphis, Tennessee.
“BNY will have to keep showing efficiency gains and pushing revenue higher,” Mosby said in a telephone interview. He has a “market perform” rating on the stock.
Rival custody bank State Street Corp. said today fourth-quarter profit fell 3.7 percent as expenses rose faster than revenue. Chicago-based Northern Trust Corp. said Jan. 21 that its earnings climbed 38 percent in the same quarter.
BNY Mellon fell 3.1 percent to $37.52 at 9:53 a.m. in New York. The stock gained 16 percent in the 12 months through yesterday, compared with a 5.7 percent increase in the 18-member Standard & Poor’s index of custody banks and asset managers.
State Street fell as much as 6.4 percent, the biggest drop in a year.
The bank said its revenue grew 2 percent from the fourth quarter of 2013 as both assets under custody and administration and assets under management rose. Fees were hurt by the strength of the U.S. dollar. Non-interest expenses declined 5 percent, which the bank attributed to a lower headcount and the replacement of technology contractors with permanent staff.
“It is a very tough revenue environment so we will have to be even more diligent on the expense side,” Hassell said in a conference call with investors.
Since October the bank has been charging a fee on euro-denominated deposits. Hassell said if rates in Europe go lower, BNY Mellon might have to push those fees higher. “We can get more aggressive if we need to be,” he said.
BNY Mellon gave a board seat to Trian’s Ed Garden last month. The firm, co-founded in 2005 by Nelson Peltz, Peter May and Garden, in June said it acquired a 2.5 percent stake in BNY Mellon. It stepped in after the bank’s pretax margin was smaller than rivals State Street Corp. and Northern Trust Corp. in four of the five past fiscal years, according to data compiled by Bloomberg.
Hassell set a goal of at least 7 percent to 9 percent growth in operating earnings per share for the period 2015 to 2017 in an October presentation. That target assumes interest rates stay at current low levels. Higher rates would translate to faster growth, Hassell told analysts.
Custody banks keep records, track performance and lend securities for institutional investors. BNY Mellon also manages investments for institutions and individuals. Like other custody banks, BNY Mellon has been hampered by low rates, which cut income from its investment portfolio, hold down revenue from securities lending and force the bank to waive fees on money-market funds.