Bank of New York Mellon earnings send stock down

Market trading boards are seen at the Australian Securities Exchange in Sydney, Friday, February 9, 2018. ( AAP Image/Ben Rushton) NO ARCHIVING

Bank of New York Mellon Corp. on Thursday reported quarterly results that disappointed some investors, who sent the custody bank’s stock sharply lower.

The stock fell $3.36, or 6%, to $52.28 by midday, putting it on pace for its biggest one-day decline in more than two years.

"Revenues were weaker than we hoped," said Jeff Harte, an analyst with Sandler O’Neill + Partners. "Missing on revenues is not something the Street is going to like for a group that’s already revenue constrained."

Total revenue during the second quarter was $4.14 billion. The average estimate among analysts was $4.13 billion, according to S&P Global Market Intelligence, though some analysts, including Mr. Harte, had been expecting more.

BNY Mellon and other custody banks have drawn scrutiny in recent years for failing to rack up higher fees from the key back-office functions they serve for investment managers, brokers and other financial firms. They have responded by slashing expenses. While the cuts have lifted profits, progress toward revenue gains has come more slowly.

BNY Mellon last year tapped former Visa Inc. executive Charles Scharf as CEO to help jump start a new era at the custody bank. He has revamped his management team, built out sales coverage in certain businesses and increased the firm’s technology budget by $300 million this year.

On Thursday, he reminded investors those investments take time to bear fruit. "We are focused on increasing the rate of revenue growth," Mr. Scharf said during a conference call with analysts. "Given the nature of our business, it takes time and therefore, it is very hard to draw any conclusions in individual quarters good or bad."

BNY Mellon’s net income rose 14% to $1.06 billion, or $1.03 a share, from $926 million, or 88 cents a share, a year earlier. Analysts polled by S&P Global had predicted a per-share profit of $1.02.

Total revenue rose 5%, led by gains in net interest income, while fee revenue climbed 3% to $3.21 billion. Revenue at the bank’s investment-services business rose 8% to $3.1 billion, aided by higher interest rates, a pickup in currency trading and more securities-lending activity.

Results from BNY Mellon’s Pershing business, which clears trades and lends to brokerage clients, were hurt by the loss of two clients.

The New York company’s asset-management division reported revenue of $1.02 billion, up 3% from a year ago. The business, which mostly manages money for pensions and other institutional clients, had net outflows of $26 billion.

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