(The following statement was released by the rating agency)
NEW YORK, July 21 (Fitch) In Fitch Ratings' view, the Bank of
New York Mellon
(BK) second quarter 2014 (2Q'14) was yet again affected by
related to investment funds and severance. For the quarter, BK
income of $554 million on slightly higher sequential revenues.
Adjusting for the
aforementioned charges, BK would have reported core net income
$700 million (excluding the $12 million reserve release).
Although revenues were
essentially flat, BK demonstrated good expense control, as
declined both sequentially and vs 1Q'13. The company also
announced that it
finished its strategic review of its corporate trust business
and intends to
keep the business.
Core operating results reflected modest improvements due to
decent growth in fee
revenue. For the quarter, noninterest expenses were up due to a
severance charge. BK remains focused on controlling expenses and
its staff. Going forward, the bottom line should benefit in
streamlining actions and continued reductions in operating
costs. The company
estimates a $100 million annual run-rate savings.
BK reported fee income growth of 4% compared to 1Q'14,
offsetting the continued
decline in net interest revenue. Investment services fees were
by 1.2% compared to 1Q'14 largely reflecting seasonally higher
lending revenue, higher cash management fees, and asset
servicing fees due to
increased market value. Investment management and performance
fees were also up
by 4.7% from 1Q'14 despite $72 million in money market fee
foreign exchange fees continue to decline due to low currency
Assets under Custody and Administration (AUC/A) and Assets under
(AUM) continue to grow at record levels, reaching $28.5 trillion
(or up 9%
compared to 2Q'13) and $1.64 trillion (or 15% compared to
Much of the increase is due to robust markets leading to higher
The increase in AUM also helps to boost investment management
Given the low rate environment, not surprisingly, net interest
declined to $719 million and the net interest margin (NIM)
compressed further to
0.98%. Despite balance sheet repositioning, Fitch expects that
BK's NII and NIM
will remain pressured until short-term rates begin to rise. Of
note, the net
unrealized pre-tax gain on the investment securities portfolio
increased by 77%
to $1.2 billion during the quarter compared with $676 million in
period due to the reduction in market interest rates.
BK's capital position is considered strong, particularly on a
basis and under Basel III. For 2Q'14, Common Equity Tier 1 ratio
(CET1) on a
fully phased-in basis under the standardized approach is 10.4%,
and 10.0% under
the advanced approaches. Both measures declined during the
attributed to the consolidation of certain investment management
the quarter. However, Fitch believes the U.S. enhanced
ratio will be more of a constraint for BK over the near term.
reported a 4.7% ratio at the holding company for the quarter.
Christopher D. Wolfe
+1 212 908-0771
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
+1 212 908-0865
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'
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