The Bank of New York Mellon Corporation
) fourth-quarter 2012 earnings of 53 cents per share came in line
with the Zacks Consensus Estimate. However, this compares
unfavorably with prior quarter earnings of 61 cents but is ahead
of the year-ago quarter's earnings of 42 cents.
BANK OF NY MELL (BK): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
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For full year 2012, BNY Mellon recorded earnings per share of
$2.03, which were at par with the earnings recorded in 2011.
However, the earnings marginally missed the Zacks Consensus
Estimate of $2.06.
Lower top line and higher operating expenses adversely impacted
results for the quarter. However, asset quality continued to show
improvement and capital ratios remained healthy. Further, BNY
Mellon's asset position improved.
Net income applicable to common shareholders came in at $622
million, down 13.6% sequentially but increased 23.2% on a
year-over-year basis. For 2012, net income stood at $2.43
billion, down 3.5% from $2.52 billion in 2011.
Performance in Detail
BNY Mellon's total revenue came in at $3.61 billion, down 1.2%
from $3.65 billion in the previous quarter but grew 5.3% from the
year-ago period. Total revenue was 0.7% ahead of the Zacks
Consensus Estimate of $3.58 billion.
For 2012, total revenue stood at $14.48 billion, down 1.4% from
$14.68 billion in the prior year. However, total revenue was 1.1%
ahead of the Zacks Consensus Estimate of $14.32 billion.
Fully tax equivalent net-interest revenue was $725 million, down
3.2% from $749 million in the previous quarter. The fall was
primarily due to lower LIBOR rates, reduced yields on the
reinvestment of securities and lower accretion, partly offset by
higher interest-earning assets.
However, net interest margin fell 11 basis points sequentially to
1.09%. The decrease was mainly attributable to increases in
interest earning assets along with lower reinvestment yields and
elimination of interest on European Central Bank deposits and
Total fee revenue stood at $2.85 billion, decreasing 1.0% from
$2.88 billion in the prior quarter. The deterioration was mainly
due to reduced investment services fees, foreign exchange and
other trading revenue, financing-related fees along with
investment and other income. These were partly offset by higher
investment management and performance fees as well as
distribution and servicing income.
Excluding restructuring charges, M&I expenses and
amortization of intangible assets as well as direct expense
related to Shareowner Services, non-interest expense came in at
$2.68 billion, up 3.8% from the last quarter. The rise primarily
reflects higher staff expenses, professional, legal and other
purchased services costs, software equipment costs, business
development expenses and net occupancy costs, partly mitigated by
lower distribution and servicing expenses and other expenses.
BNY Mellon's credit quality continued to improve in the reported
quarter. Provision for credit losses was a credit of $61 million
in the quarter compared with a benefit of $5 million in the prior
quarter and provision of $23 million in the prior-year quarter.
Nonperforming assets declined 9.1% sequentially and nearly 27.0%
from the prior-year quarter to $249 million. Likewise, allowance
for loan losses fell 15.1% from the prior quarter and 22.1% from
the year-ago quarter to $387 million in the reported quarter.
Assets under management totaled $1.38 trillion as of Dec 31,
2012, up 2.0% sequentially and 10% year over year. Both rises
were driven by higher market values and net inflows.
Assets under custody and administration totaled $26.7 trillion as
of Dec 31, 2012, up 0.4% sequentially and 8.5% year over year.
BNY Mellon's capital ratios remained stable during the quarter.
As of Dec 31, 2012, Tier 1 capital ratio was 15.1% compared with
15.3% as of Sep 30, 2012 and 15.0% as Dec 31, 2011.
The estimated Basel III Tier 1 common equity ratio increased to
9.8% compared with 9.3% in the prior quarter. The rise reflects
reduced risk-weighted assets.
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 2012, the company
repurchased 49.8 million shares for $1.1 billion.
During the quarter, BNY Mellon purchased the remaining 50% stake
of its WestLB Mellon Asset Management joint venture (JV). Back in
2006, BNY Mellon had formed this JV with Portigon - a
Germany-based portfolio management and service company. Either of
the parties did not disclose the terms of the deal.
Concurrent with the earnings release, BNY Mellon announced a
quarterly cash dividend of 13 cents per share. The dividend will
be paid on Feb 5 to shareholders of record at the close of
business on Jan 28.
We believe that 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.
One of BNY Mellon's peers,
State Street Corporation
), which holds a Zacks Rank #3 (Hold), is expected to announce
its fourth quarter 2012 results on Jan 18.
BNY Mellon also retains a Zacks Rank #3 (Hold). Presently, we
maintain a long-term Neutral recommendation on the stock.