UPDATE 2-BNY Mellon's fourth-quarter profit shows modest gain

Fri Jan 17, 2014 12:17pm EST

By Tim McLaughlin

Jan 17 (Reuters) - BNY Mellon Corp said on Friday its fourth-quarter profit rose slightly, meeting Wall Street expectations, but higher staff expenses weighed on results even as a buoyant stock market lifted investment management and performance fees.

The bank's profit margin disappointed some analysts, sending its shares down 2.7 percent to $32.99 in mid-day trading.

"This is a company, despite making operating improvements, that is struggling to deliver stronger operating profit margin," said Jim Shanahan, a stock analyst at Edward Jones.

In addition, the long-term net inflows into the bank's mutual funds totaled $2 billion in the fourth quarter, its weakest showing in the past five quarters. Consistent, big inflows have been an important part of management's narrative to Wall Street.

"They laid an egg, but it could be just a one-off thing," Shanahan said, referring to the flows.

Excluding a one-time item, the world's largest custody bank earned $628 million, or 54 cents a share, compared with $622 million, or 53 cents a share, a year earlier. In the latest quarter, the bank recorded an after-tax loss of $115 million on an equity investment.

The latest per-share result matched analysts' expectations, according to Thomson Reuters I/B/E/S.

Net income was $513 million, or 44 cents a share.

Pre-tax operating margin was 20 percent in the quarter, including the hit from an equity investment, compared with 24 percent a year ago.

BNY Mellon Chief Financial Officer Todd Gibbons said staff expenses, which were 42 percent of total revenue, was on the high end. The expense totaled $1.52 billion in the quarter, up 4.5 percent from a year ago, when it was 40 percent of total revenue.

As one example, Gibbons said when money market and securities lending fees decline, the cost of delivering the services around the activities doesn't necessarily change.

The bank posted revenue gains across all of its major activities, such as safeguarding assets and calculating mutual fund prices. Investment management and performance fees were $904 million in the quarter, a 6 percent increase over the year-ago period. Foreign exchange revenue surged 19 percent to $126 million on higher volume and volatility in global currency markets.

BNY Mellon ended 2013 with $27.6 trillion in assets under custody and administration, a 5 percent gain over 2012.

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