UPDATE 3-Bank of New York Mellon Q2 profit drops, shrs fall

* Net income falls 43 pct

* Quarterly dividend unchanged at 9 cents

* Shares off 7.7 percent (Adds details on stock activity, comments from CEO)

By Svea Herbst-Bayliss

BOSTON, July 22 (Reuters) - Bank of New York Mellon Corp (BK.N), the asset management and servicing group, said on Wednesday that second-quarter profit fell 43 percent after charges to repay U.S. government bailout money and writing down the value of investments.

Its shares fell 7.7 percent while most other asset managers posted modest gains.

Net income for the company, the world's largest trust bank, dropped to $176 million, or 15 cents a share, in the quarter from $309 million, or 27 cents a share, a year earlier.

Total revenue declined to $2.96 billion from $3.38 billion.

"It seems that investors are penalizing companies for their conservative approach, sending stock prices down if revenue is a little softer," said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel.

Earnings were reduced by 23 cents per share due to its repayment of $3 billion in bailout funds and payment of a special assessment to the Federal Deposit Insurance Corp.

It recorded a one-time charge of $196.5 million related to repaying funds from the government's Troubled Asset Relief Program.

Excluding items, earnings stood at 57 cents per share, down from 82 cents a year earlier, but exceeded Wall Street expectations of 53 cents.

Income from continuing operations attributable to common shareholders fell to $267 million, or 23 cents per share, from $303 million, or 26 cents a share.

Revenue was reduced by $256 million because it wrote down the value of some investments. The company wrote down $152 million during the second quarter in 2008.

Chief Executive Robert Kelly said investment losses remained stubbornly high due to further deterioration in the housing market. "The portfolio still has risks and we want to manage those risks down," Kelly said in an interview, explaining that it may write down the assets or sell them.

The company also set aside $61 million for credit losses during the quarter, more than four times the $13 million set aside a year ago.