As it waits for the fee income that will come once interest rates rise, Bank of New York Mellon will continue to try and control costs and focus on expanding its asset management and asset servicing businesses overseas, the firm said during an earnings call last Wednesday.
Robert Kelly, BNY Mellon's chief executive, said the firm will cut expenses by $100 million, or 4.3%, this year. "There are a lot of opportunities to drive efficiencies in our businesses," he said. "Executives will re-engineer operations to make us more efficient."
Todd Gibbons, BNY Mellon's chief financial officer, said in an interview the company's asset management business is "finally" outperforming the market.
"We expected that asset management would lead us out of this recession, and it is doing exactly that," he said. "We expect large market growth in asset management and securities servicing, and a large amount of that will be foreign."
BNY Mellon's fourth-quarter earnings rose eight times over to $594 million, or 49 cents a share, from $66 million, or 2 cents per share, a year earlier. Excluding certain charges, BNY Mellon reported earnings of 60 cents, which beat analyst estimates by 9 cents, according to Thomson Reuters. Fee revenue rose 43%, to $2.58 billion, from a year earlier. Net interest revenue fell by a third, to $724 million, but rose slightly from the previous quarter.
Kelly said the low interest rate environment continued to hamper net interest and fee revenue, but BNY Mellon had "excellent growth" in asset and wealth management revenue, as asset management fee revenue rose 13% from a year earlier.
"Any change in interest rates will help us generate fee revenue," Kelly said, predicting rates will rise by yearend.
BNY Mellon's assets under management rose 15%, to $1.2 trillion, from a year earlier. In November, it closed its $387 million acquisition of Insight Investment Management from Lloyds Banking Group. Insight Investment specializes in so-called liability-driven investment solutions, active fixed-income asset management and alternative asset management.
Ronald P. O'Hanley, president and chief executive of BNY Mellon Asset Management, said during the conference call that two-thirds of BNY Mellon's growth in asset management revenue came from outside of the U.S. He said 50% of BNY Mellon's revenue is being generated in non-U.S. markets. Kelly said BNY Mellon remains confident it can continue to increase share outside the U.S.
Gibbons said in an interview that a large percentage of BNY Mellon's international assets are in Europe, because it is still developing its presence in the Asia-Pacific market.
The pipeline for new business has increased significantly, executives at BNY Mellon said during the conference call, specifically in its asset management business. O'Hanley said the pipeline is "similar to the levels in the middle of the last decade."
BNY Mellon remains open to acquisitions, Kelly said. In addition to its acquisition of Insight Investment, in December it announced it would buy Portsmouth Financial Systems, a developer of modeling and analytics of structured credit transactions, to provide clients and investors with greater transparency for structured credit portfolios. "We will focus on those deals and look for them globally, but our hurdles are tough," Kelly said.
One hurdle could be the Obama administration's proposed bank tax. Kelly said that the tax encourages banks to reduce their balance sheets, which "is not a good thing to do in the face of a fragile recovery."
He said this tax "creates an unlevel playing field with competitors in Europe" and ultimately discourages acquisitions.
The tax is not good "for the industry or our country," Kelly said.
Analysts said the tax unfairly penalizes custodial assets and could put large custody banks like BNY Mellon, State Street Corp. and Northern Trust in a difficult position. Kelly said BNY Mellon is still examining the proposed tax and plans to discuss it further with regulators. "We would like to have an influence [on the tax debate]," he said. "Our business model is so different from traditional banks, but it is hard to say [what the impact will ultimately be]."
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