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Fitch: BNY Mellon's 1Q17 Results Supported by Expense Management
April 20, 2017 / 6:16 PM / 8 months ago

Fitch: BNY Mellon's 1Q17 Results Supported by Expense Management

(The following statement was released by the rating agency) NEW YORK, April 20 (Fitch) The Bank of New York Mellon Corporation (BK) reported net income of $880 million in the first quarter of 2017 (1Q17) on revenue of $3.84 billion, according to Fitch Ratings. BK's 1Q17 results equate to a 1.05% annualized return on average assets (ROAA), up from 0.96% in the sequential quarter and 0.88% from a year ago. Compared to the year ago quarter, BK's returns improved due to solid expense management, higher revenue across most businesses, higher interest rates, and a smaller balance sheet. Relative to the linked quarter, results improved due to stronger fees in clearing services and depositary receipts, and roughly flat expenses partially offset by weaker net interest revenue due to rate-hedge ineffectiveness. Total fee revenue increased by 2%, on both a linked-quarter and year-over-year basis. The increase in both periods was driven by stronger results in clearing services and depositary receipts partially offset by the stronger U.S. dollar and lower fees in corporate trust. Fees on a year-over-year basis were also aided by higher market values in asset servicing and asset management. Management indicated that with the interest rate increases by the Federal Reserve, nearly all money market fee waivers have been recovered. Management also noted that the company has seen increased traction in its collateral management product offerings from clients seeking to optimize their use of collateral under various new regulations and clearinghouse requirements. Additionally, the company indicated its clearing business continues to benefit from secular trends in its registered investment advisor client base related to the Department of Labor's Fiduciary Rule as traditional brokers migrate to an advisory model. Net interest revenue (NIR) increased 3% year-over-year but was down 5% sequentially. Likewise, the net interest margin (NIM) expanded by 13bps year-over-year but contracted 3bps on a linked-quarter basis. Results from the linked quarter reflect $43 million of premium amortization and interest rate hedge ineffectiveness which reduced the NIM by 6bps. Excluding this impact, BK saw modestly higher NIR compared to the linked quarter due to higher interest rates. Similarly, year-over-year results were improved by interest rate increases. Management expects NIR to increase by 4%-6% for FY2017 as a result of assets repricing at higher rates and notes that deposit betas have been performing as expected. Fitch continues to believe BK's NIR is sensitive to further movements in short-term interest rates. Fitch notes that linked-quarter deposit rates only increased by 4bps compared to 25bps rate increases in December and March. BK continued to show good cost discipline in 1Q17, with expenses roughly flat sequentially and year-over-year. BK faced increased regulatory cost headwinds in the quarter as it ramps up spending to complete its annual CCAR submission and its revised resolution plan by July 1. The company expects costs to decline by $10 million in the third and fourth quarter of this year. BK also faced higher expenses due to its annual staff compensation increase; however, it continues to show good results from its business improvement process initiative across a number of expense line items, along with continued expense benefits from the stronger U.S. dollar, primarily relative to the British pound. Fitch believes that much of the work BK has done on the expense front will continue to become more evident through further increases in operating leverage as the economic and interest rate environment improves. BK's assets under management (AUM) through 1Q17 were $1.73 trillion, which is up 5% compared to both 4Q16 and 1Q16. The company benefitted from higher equity market values this quarter along with solid inflows into its liability-driven investment and cash strategies. Assets under custody and administration (AUC/A) were up 2% sequentially due to higher equity market values and net new business. AUC/A totalled $30.6 trillion at the end of 1Q17. BK continues to maintain solid capital levels, particularly in the context of its low -risk balance sheet. BK's fully phased-in Basel III CET1 of 10% (advanced approach) reported at the end of 1Q17 increased by 30bps sequentially, primarily due to retained earnings. The company also improved its fully phased-in enhanced supplementary level ratio, BK's binding capital constraint, reaching 5.9% at the consolidated level and 6.6% at its main bank subsidiary, both in excess of the final requirements. These levels improved by 30bps and 50bps, respectively, during the quarter due to retained earnings and a smaller average balance sheet. BK's liquidity coverage ratio of 115% comfortably exceeds the 100% requirement. Contact: Primary Analyst Christopher Wolfe Managing Director +1 212 908-0771 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Christopher Van Bell Associate Director +1 212 908-0777 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on 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 WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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