A risk-averse environment and lower trading levels resulted in mediocre results for U.S. trust banks. The largest of them all, Bank of New York Mellon (NYSE: BK - News), recorded a 26% fall in fourth-quarter profits on account of lower fee revenues.
Weak economic conditions have definitely taken their toll as the demand for custody banks has dropped, and investment opportunities have been dismal because of historically low interest rates. However, there were reasons to smile as well.
The quarter that was
BNY Mellon's revenues for the quarter dropped 6% as fee revenue fell, reflecting lower volumes and depositary receipt revenues as well as higher money market fee waivers. Investment services fees fell 8% from the year-ago period, with investment management and performance fees falling 9% from last year.
Although net income tumbled 26% to $505 million, the results include a $107 million restructuring charge that dragged earnings per share down $0.06. Excluding that one-time item, the company earned $0.48, which was a tad less than last year's $0.54. So, the bank didn't do quite as badly as the headlines might suggest. In fact, there are two things that I liked about the quarter.
A couple of positives
BNY Mellon's asset management services seem to be making a return. Assets under management rose to $1.26 trillion, increasing 8% from the year-ago period and 5% sequentially. Similarly, assets under custody and administration rose 3% to $25.8 trillion compared with the same period last year, showing signs of new businesses flowing in. Although the flat asset-management fees are disappointing, the rise in AUC and AUM is definitely a plus and will help BNY Mellon improve its performance going forward.
The bank tried to counter the bleak top line growth by cutting costs. The restructuring may help the company save almost $700 million before taxes by 2015.
A hiccup, though...
One downer is the foreign-exchange-related lawsuit against BNY Mellon. But the latest is that BNY Mellon and the Justice Department have come to a partial settlement whereby the bank will furnish details of the way it derives currency exchange rates for its customers. This should provide some relief to investors, some of which claimed the bank had been ripping them off by giving them unfavorable rates.
A sturdy balance sheet and initiatives to improve efficiency and profitability are definitely two green flags for me and make BNY Mellon a stock to take note of. To stay up to date on all the top news and analysis on BNY Mellon, simply click here and add the stock to your own personalized Watchlist.
Fool contributor Shubh Datta doesn't own any shares in the companies listed above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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