BOSTON BNY Mellon Corp (BK.N) said fourth-quarter earnings rose 23 percent, but its shares fell as investors showed disappointment with declines in foreign exchange activity, subdued revenue from deposits and an uptick in expenses.
The bank's profit matched Wall Street estimates, but its shares fell 2.8 percent to $26.02 on Wednesday. With interest rates scraping along the bottom, BNY Mellon's net interest margin - largely the difference between what it gets from loans and what it pays on deposits - was 1.09 percent in the fourth quarter, down from 1.27 percent a year ago.
With the fiscal cliff looming, the bank experienced a surge in deposits, hurting that margin, BNY Mellon Chief Executive Gerald Hassell explained on a conference call.
"We saw a run-up of $20 billion, $30 billion in our deposits," Hassell said. "I think the debt ceiling is going to put another potential concern in the eyes of investors ... We are seeing people trying to put some money to work, but still there's an enormous amount of cash sitting on the sidelines waiting for better certainty and clarity."
The bank also has been hurt by declines in revenue in some business segments that have relatively high fixed costs, BNY Mellon Chief Financial Officer Todd Gibbons said in a telephone interview. But that has been offset by strong gains in revenue, for example, from the bank's investment management business.
Nomura analyst Glenn Schorr said strong investment management fees, good deposit growth and solid capital ratios were partially offset by higher expenses, weak trading revenue and flat servicing fees.
"All in, progress on some fronts and great asset management results, but the net earnings picture still hovers in a similar range," Schorr said in a research note. "Expect the stock to be a bit soft post the recent run."
Net income was $622 million, or 53 cents a share, up from $505 million, or 42 cents a share, a year earlier.
Investment management and performance fees surged 17 percent to $853 million on buoyant stock market returns. Assets under management were up 10 percent to $1.39 billion. Fees from investment services rose 1 percent to $1.6 billion.
Assets under custody and administration climbed 9 percent to $26.7 trillion.
Revenue from trading foreign currencies continued to be a weak spot. Foreign exchange revenue totaled $106 million, down 42 percent, on declining volatility and volumes.
The bank is battling several lawsuits, defending itself against allegations of overcharging pension funds and other customers on forex fees, a charge it denies.
(Reporting by Tim McLaughlin; Editing by John Wallace, Grant McCool, Marguerita Choy and Nick Zieminski)