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BNY Mellon (BK) Q1 Earnings Top Despite Market Challenges

The Bank of New York Mellon Corp. BK reported first-quarter 2016 adjusted earnings per share of 74 cents, which outpaced the Zacks Consensus Estimate of 68 cents. Moreover, the bottom line compared favorably with the prior-year quarter earnings of 67 cents.

 


Better-than-expected results were driven by lower expenses, partly offset by a slight fall in revenues and higher provision for loan losses. Notably, assets under management (AUM) reflected weakness during the quarter.

Results for the quarter included litigation and restructuring charges. After considering this, net income applicable to common shareholders came in at $804 million or 73 cents, up from $766 million or 67 cents in the prior-year quarter.

Quarterly Performance

Total revenue (non-GAAP) declined nearly 1% year over year to $3.74 billion. However, the figure came slightly above the Zacks Consensus Estimate of $3.72 billion.

Net interest revenue, on a fully taxable equivalent basis, was $780 million, up 5% year over year. The increase was driven by higher yields on interest-earning assets, partially offset by higher rates paid on interest-bearing liabilities and the impact of interest rate hedging activities.

Moreover, net interest margin increased 4 basis points to 1.01%.

Total fee and other revenues inched down 1% year over year to $2.97 billion. This was mainly attributable to lower investment management and performance fees, foreign exchange and other trading revenue as well as distribution and servicing income, partially offset by higher financing-related fees as well as investment and other income

Total non-interest expenses (non-GAAP) amounted to $2.56 billion, down 3% year over year. This reflects lower expenses in nearly all categories, primarily driven by the favorable impact of a stronger U.S. dollar, lower staff and legal expenses and the benefit of the business improvement process, partially offset by higher distribution and servicing expense.

As of Mar 31, 2016, AUM was $1.64 trillion, down 5% year over year. This reflected net outflows primarily in 2015 and the unfavorable impact of a stronger U.S. dollar against the British pound.

Moreover, assets under custody and administration totaled $29.1 trillion, up 2% year over year. Net new business and the favorable impact of a weaker U.S. dollar against the Euro were partially offset by lower market values.

Asset Quality

BNY Mellon’s credit quality depicted a mixed picture. Non-performing assets increased significantly year over year to $292 million. Moreover, provision for credit losses was $10 million, substantially up year over year.

However, allowance for loan losses declined 15% to $162 million.

Capital Ratios

Capital ratios displayed strength. As of Mar 31, 2016, common equity tier-1 capital ratio (Standardized Basel 3 fully phased-in) came in at 11.0% compared with 10.2% as of Dec 31, 2015. Tangible common equity ratio stood at 6.7%, up from 6.5% as of Dec 31, 2015.

Capital Deployment Activities

During the reported quarter, BNY Mellon bought back 16.2 million shares for $577 million.

Concurrent with the earnings release, the company declared a quarterly dividend of 17 cents per share. The dividend will be paid on May 13 to shareholders of record as of the close of business on May 3.

Our Viewpoint

BNY Mellon’s restructuring initiatives and inorganic growth strategy will go a long way in supporting its bottom-line growth. Also, the company’s expanding client base and improved business platform are expected to provide economies of scale. Moreover, a sturdy capital position and enhanced capital deployment activities will continue to boost investors’ confidence in the stock.

However, the impact of stringent regulations and margin pressure remain matters of concern. Also, costs are anticipated to rise in the near term, led by increased litigation and restructuring expenses.

Currently, BNY Mellon carries a Zacks Rank #3 (Hold).

Other Major Regional Banks

Driven by higher revenues, Northern Trust Corporation NTRS delivered a positive earnings surprise of 6% in the first quarter of 2016. Earnings per share came in at $1.01, easily beating the Zacks Consensus Estimate of 95 cents.

SunTrust Banks, Inc. STI is slated to announce results on Apr 22, while State Street Corporation STT will report on Apr 27.

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