Fitch: BNY Mellon's 3Q13 Core Earnings Flat on Lower Seasonal Revenue

Wed Oct 23, 2013 11:17am EDT

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(The following statement was released by the rating agency) NEW YORK, October 23 (Fitch) The Bank of New York Mellon (BK) reported 3Q13 net income of $967 million on slightly lower revenue. Net income was aided by a $261 million partial reversal of a 1Q13 charge related to foreign tax credits. Adjusting for this charge, net income would have been $706 million and slightly down from 2Q13. The sequential revenue decline is partly attributed to seasonal factors. BK has largely been able to control expenses, with staff expenses coming in at a steady 40% of total revenue. Overall fee revenues were down 7% sequentially owing to seasonal factors, although fee revenues did show growth on a year-on-year basis. Asset Servicing revenues declined 2% on a sequential basis due to lower securities lending activity. Investment management fees were similarly down on a sequential basis due to seasonal factors and higher money market fee waivers vs. prior periods. Assets under Custody and Administration (AUC/A) showed solid growth of 5% to $27.4 trillion from a combination of net new business and higher market values. Although new business flows came in at $110 billion for the quarter, this was down from 2Q13's $201 billion. NII and NIM remained relatively flat to 2Q13, although benefitted from lower premium amortization on investment securities and higher average earning assets. Fitch continues to view BK's NII and NIM at cyclical lows and thus should improve if and when short-term rates increase. BK also recorded a gain of $22 million as it reduced the size of the investment securities portfolio and reclassified $7 billion of mortgage-backed securities to held-to-maturity from available-for-sale. This is meant to insulate capital from losses under rising rates as these will flow to other comprehensive income which will be deducted from regulatory capital. BK reported Basel III Tier 1 Common (T1C) ratio under both the standardized and advanced approaches. Under the standardized approach, T1C was 10.1%, while under the advanced approach, it was 11.1%. Fitch considers risk-weighted capital measures as comfortable under either approach, as these are in excess of regulatory minimums inclusive of additional buffers. BK also disclosed its supplemental leverage ratio at the holding company of 4.3%. Although below proposed standards currently under consideration, Fitch considers that BK has adequate levers to comply, particularly given its strong capital generation. Contact: Christopher D. Wolfe Managing Director +1-212 908-0771 Fitch Ratings, Inc. One State St. Plaza New York, NY 10004 Doriana Gamboa Director +1-212-908-0865 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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