* Dividend lowered 63 percent
* Profit falls more than expected
* Bank changes strategy, reduces risk
* Shares fall 12.9 percent in early trading
(Adds CEO comments throughout, byline)
By Jonathan Stempel
NEW YORK, April 21 Bank of New York Mellon Corp
(BK.N) lowered its dividend 63 percent to build capital and
said a decline in fees resulting from falling equity markets
caused first-quarter profit to drop more than expected.
The bank's shares fell $3.61, or 12.9 percent, to $24.42 in
early trading on the New York Stock Exchange.
Chief Executive Robert Kelly said the decision to cut the
quarterly payout to 9 cents per share from 24 cents was "not
made lightly." He said the reduction will save $700 million a
year and help the bank repay more quickly the $3 billion of
taxpayer money received under the government's Troubled Asset
"It's a challenging environment on the revenue side," Kelly
said in an interview.
Quarterly net income attributable to common shareholders
declined 57 percent to $322 million, or 28 cents per share,
from $746 million, or 65 cents per share, a year earlier.
Excluding writedowns for goodwill and investments as well
as merger costs, profit was 53 cents per share, below the
average analyst forecast of 63 cents, Reuters Estimates said.
Revenue, excluding investment writedowns, fell 14 percent
to $3.28 billion, short of the average forecast of $3.67
billion. Expenses fell 10 percent, in part because of 900 job
cuts. A total of 1,800 job cuts are planned this year.
Kelly said the bank could have posted better results but
chose to reduce balance sheet risk, citing fallout from Lehman
Brothers Holdings Inc's LEHMQ.PK bankruptcy in September.
"We have been managing our company extraordinarily
conservatively: it is a change in strategy," he said in the
interview. "A year ago, about one-third of our balance sheet
was in short-term liquid instruments. Today, it is 49 percent.
The result is that we don't earn as much net interest income.
And I think at the margin, most investors want us to do that."
Bank of New York Mellon's main rivals, State Street Corp
(STT.N) and Northern Trust Corp (NTRS.O), also reported lower
quarterly profits on Tuesday. State Street lowered its dividend
Custodial banks provide processing and back-office services
to institutional clients. Bank of New York Mellon, Northern
Trust and State Street are also large asset managers.
FEE REVENUE SLUMPS
Bank of New York Mellon said total fee revenue fell 20
percent from a year earlier to $2.43 billion. This included a
20 percent decline from securities servicing to $1.23 billion,
and a 28 percent drop from asset and wealth management to $609
Fees also declined 20 percent from the 2008 fourth quarter,
including a 40 percent drop in foreign exchange.
The bank's ratio of tangible common equity to tangible
assets was 4.2 percent, close to what many analysts prefer.
Kelly said it is too soon to say when the bank will repay
TARP. "It has been very clear all the way along that we won't
be able to repay TARP until our regulators are comfortable," he
said in the interview. "It is just too early to say what the
eventual outcome will be."
Through Monday, Bank of New York Mellon shares had fallen 1
percent this year, compared with a 29 percent drop in the KBW
Bank Index .BKX.
(Reporting by Jonathan Stempel; editing by Gerald E. McCormick
and John Wallace)