Bank Of New York Mellon Corporation (The) (BK)

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The Bank of New York Mellon (BK)

Q4 2011 Earnings Call

January 18, 2012 8:00 am ET

Executives

Brian T. Shea - Senior Executive Vice President and Chief Executive Officer of Pershing LLC

Andy Clark -

Art Certosimo - Senior Executive Vice President and Chief Executive Officer of Alternative and Broker-Dealer Services

Thomas P. Gibbons - Vice Chairman, Chief Financial Officer and Senior Executive Vice President

Gerald L. Hassell - Chairman, Chief Executive officer, President, President of The Bank of New York, President of The Mellon Bank N A and Member of Executive Committee

Karen B. Peetz - Vice Chairman, Chief Executive Officer of Financial Markets & Treasury Services and Senior Executive Vice President

Timothy F. Keaney - Executive Vice President, Chief Global Client Management officer, Senior Executive Vice President, Vice Chairman and Chief Executive officer of Asset Servicing

Curtis Y. Arledge - Chief Executive Officer

Analysts

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Brian Bedell - ISI Group Inc., Research Division

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

John W. Stilmar - SunTrust Robinson Humphrey, Inc., Research Division

Marty Mosby - Guggenheim Securities, LLC, Research Division

Rob Rutschow - Credit Agricole Securities (USA) Inc., Research Division

Howard Chen - Crédit Suisse AG, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Betsy Graseck - Morgan Stanley, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the fourth quarter 2011 earnings conference call hosted by BNY Mellon. [Operator Instructions] Please note that this conference call webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY Mellon's consent. I will now turn the call over to Mr. Andy Clark. Mr. Clark, you may begin.

Andy Clark

Thanks, Wendy, and welcome, everyone. With us today are Gerald Hassell, our Chairman, President 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, January 18, 2012, 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 the individual businesses. We'll be using the Quarterly Earnings Review document to discuss our results.

Now I'd like to turn the call over to Gerald. Gerald?

Gerald L. Hassell

Thanks, Andy. And good morning, everyone, and thanks for joining us on what I know is a very busy day for you all. For the quarter, we generated net income of $505 million and earnings per share of $0.42, which compares to $0.54 in the fourth quarter of last year. I should note that the fourth quarter of 2011 included a restructuring charge related to our efficiency initiatives and some other items that Todd will cover in just a minute.

Obviously, it was a tough revenue quarter as our results reflected the ongoing macro environment challenges. The general uncertainty in the financial markets resulted in lower-than-normal levels of client activity. Now a good indicator of that is the combined share volume on the New York Stock Exchange and NASDAQ, which was down 6% year-over-year and 18% sequentially. It clearly has an impact on areas like our investment services fee revenues.

Investors have been very risk averse. We saw a lack of organic growth as our clients reallocated their assets in a more defensive posture, significantly to cash, in response to uncertainty in the markets. Money market fund managers, including our own, have been particularly conservative. They shortened durations and reduced European exposure, which resulted in lower yields and even higher money market fee fund waivers.

Now despite those challenges, we were pleased with what we were able to accomplish in terms of winning new business, strengthening our balance sheet, controlling expenses and positioning our company for 2012. We are continuing to win new business. In Asset Management, we had positive long-term flows in every quarter in 2011. And in the fourth quarter, we had another strong quarter in terms of new assets under custody wins. Our balance sheet continues to strengthen in terms of liquidity, asset quality and capital.

On the liquidity front, deposit levels grew significantly. For example, non- interest-bearing deposits were up 93% year-over-year. Asset quality improved as our sub-investment grade securities declined 11% due to paydowns and some opportunistic selling.

And on the capital front, we generated almost $570 million of Tier 1 common and are ahead of where we expected to be in terms of Basel III Tier 1 common ratio. And excluding the restructuring charge, we delivered a very strong 20% return on that increased level of equity capitals. Now we did slow down our buyback program a bit in the fourth quarter to make sure we met our capital targets, but we are looking to resume our program this quarter.

Now most of our core Investment Services metrics continue to look good, especially in clearing, but they were severely impacted by volume. And in Investment Management, we're encouraged by our continued strong long-term investment performance and positive flow.

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