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The Bank of New York Mellon Corporation (BK)
Q3 2010 Earnings Call
October 19, 2010 8:00 AM ET
Andy Clark – Investor Relations
Bob Kelly– Chairman and CEO
Todd Gibbons – Chief Financial Officer
Karen Peetz – CEO, Financial Markets and Treasury Services
Tim Keaney – Chairman, Europe, Chief Global Client Management Officer and Co-CEO, BNY Mellon Asset Servicing
Jim Palermo – Vice Chairman, BNY Mellon and CEO, Global Client Management
Howard Chen – Credit Suisse
Betsy Graseck – Morgan Stanley
Glenn Schorr – Nomura
Mike Mayo – CLSA
Brian Bedell – ISI Group
John Levin – Levin Capital
Gerard Cassidy – RBC
John Golgart – Equinox
Scott Scher – Clovis Capital
Tom McCrohan – Janney Capital Markets
Previous Statements by BK
» The Bank of New York Mellon Corporation Q2 2010 Earnings Call Transcript
» The Bank of New York Mellon Corp. Q1 2010 Earnings Call Transcript
» The Bank of New York Mellon Corp. Q4 2009 Earnings Call Transcript
I will now turn the call over to Mr. Andy Clark. Mr. Clark, you may begin.
Thanks, Wendy, and welcome everyone. With us today are Bob Kelly, our Chairman and CEO; Todd Gibbons, our CFO, as well as several members of our executive management team.
Before we begin, let me remind you that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by the forward-looking statements as a result of various factors. These factors include those identified in the cautionary statement on page 13 of the press release and those identified in our documents filed with the SEC that are available on our website bnymellon.com. Forward-looking statements in this call speak only as of today, October 19, 2010 and we will not update forward-looking statements.
This morning’s press release provides the highlights of our results. We also have the quarterly earnings review document available on our website, which provides a quarterly review of the total company and our businesses. We will be using the quarterly earnings review to discuss our results.
Now, I’d like to turn the call over to Bob. Bob?
Thanks, Andy, and good morning, everyone, and thanks for joining us. Q3 EPS was $0.51 or $625 million and that includes $0.04 of primarily M&I expense. Revenues were up 3% year-over-year and what is encouraging about that is our two largest sources of fees, namely security servicing and asset management, which together contribute over 80% of fee revenue are up nicely.
Specifically, security servicing fees are up 20% year-over-year. We’re benefiting from the GIS and BHF asset servicing acquisitions and of course, the new business growth. Underlying this, assets under custody were $24.4 trillion, up 10% year-over-year a new record for us.
Asset and wealth management fees were up 8% year-over-year. AUM was $1.14 trillion, up 18% year-over-year also a new record. This is our fourth consecutive quarter of positive long-term asset inflows for asset and wealth management. That’s $11 billion for the quarter and a total of $53 billion over the past 12 months.
In terms of offsets, it was weakness in FX and other trading, Q3 is seasonally the weakest quarter for FX, volatility was lower and derivatives and fixed income trading still weak. Trading volumes were low and that impacts Pershing and net interest income was down a few million dollars, sequentially which is essentially due to the impact of lower interest rates.
On the new business front on top of strong inflows and asset management we had new asset servicing wins of $480 billion in assets under custody, that’s up 15% from the second quarter. Pershing also had some significant new business wins that will start to be converted during the fourth quarter and into next year.
We’re already realizing revenue synergies related to the acquisitions, about a third of the $480 billion in new assets under custody was directly attributable to the acquisitions. Our newly combined capabilities position us to bid for and win pieces of business that we never would have won previously.
As a couple of examples in broker dealer services, we’ve already won three significant collateral management deals in Germany since the BHF acquisitions. Clients told us very clearly that our expanded infrastructure in Germany was an important factor in the decision towards new business.
Here in the U.S., our new integrated administration and transfer agency capabilities have already generated some nice wins in the insurance base. Credit quality continues to improve. The provision went from plus $20 million last quarter to minus $22 million this quarter.
Criticized assets were down 26% in behind that, expenses backing out acquisitions were only up 2% year-over-year and well controlled. Capital ratios were slightly above where we expected them to be after we closed on the acquisitions so our Tier 1 capital ratio was 12.2% and our Tier 1 common ratio was 10.7%.
Our business model generates a lot of capital and that would be approximately $800 million per quarter. As you know, we’ve been deploying some of that capital to make acquisitions both GIS and BHF were accretive to earnings and EPS in the third quarter.
There’s also been a lot of comments recently about the impact of Basel III, in fact it doesn’t have all the detail related to implementation, so there’s still guesswork involved however, given the strength of our balance sheet and our ability to generate significant levels of capital, we feel really good about our relative positioning versus peers.