Bank of New York Mellon, Battered By Low Rates and Low Volume, Misses Wall Street Estimates

  @twitter.com/EleazarMelendez on
A BNY Mellon sign is seen on its headquarters in New York's financial district
A BNY Mellon sign is seen on its headquarters in New York's financial district, January 19, 2011.

Bank of New York Mellon (NYSE:BK), a giant of the custody and trust banking sector, reported a 31 percent fall in earnings to $478 million, or 42 cents a share, for the fourth quarter. Analysts had expected earnings of 52 cents, according to Bloomberg.

Shares fell 3.8 percent to $20.86 in mid-morning Wednesday trading.

"It was a challenging revenue quarter, as general uncertainty in the financial markets resulted in lower-than-normal levels of client activity fourth quarter," CEO Gerald L. Hassell said in a statement.

Financial institutions that derive a large portion of their revenue from custody and trust banking -- an area of banking that deals with managing corporate treasuries and making sure fixed-income obligations are met - tend to fare poorly in a low interest-rate environment. As the U.S. Federal Reserve has kept its main lending rate close to zero since 2009, margins at BNY Mellon, and competitors like State Street (NYSE:STT) and Northern Trust (NASDAQ:NRTS), have eroded.

Boston-based State Street also missed earnings estimates for the fourth quarter in its results also announced Wednesday. Its shares felll more than 7 percent.

The slowdown in the volume of trading increased last quarter as institutional investors bolted from the market, adding increased downward pressure to BNY's bottom line. While all revenue line-items fell, the biggest hit was to a category known as "Issuer Services," which includes managing assets for depositary receipts. That business was particularly affected by the downturn in market volume.

Return on common equity, a measure of how much the bank earned on all assets under management, plummeted to 5.9 percent, from 8.5 percent in 2010.

While the New York-based bank lowered costs by laying off workers - it had 900 fewer employees than in the third quarter or nearly 2 percent of the total payroll - it experienced increased costs as a result of restructuring, which it described as "related to efficiency initiatives." It also experienced a less favorable tax rate than a year ago.

While Bank of New York Mellon was unable to capitalize on growth, one bright spot from the report was that assets under management rose 8 percent to $1.26 billion from the year-earlier quarter.

Join the Discussion
Nintendo's Newest Kirby Game Is A Total Detour
Nintendo's Newest Kirby Game Is A Total Detour
Fitbit's First Activity Watch Falls Short
Fitbit's First Activity Watch Falls Short
Dying Light Is The Spiritual Successor To 'Dead Island'
Dying Light Is The Spiritual Successor To 'Dead Island'
The Last Mitsubishi Evolution
The Last Mitsubishi Evolution
The i8 Is Proof BMW Should Make More Mid-Engined Cars
The i8 Is Proof BMW Should Make More Mid-Engined Cars
QD Vision Shows Off Cheap 4K TVs
QD Vision Shows Off Cheap 4K TVs

More Video