While Bank of New York Mellon Corp. waits for interest rates to rise, the banking company plans to continue to look for ways to control costs this year as it expands its asset management and asset servicing businesses overseas.
Robert Kelly, the company’s chief executive officer, said during a conference call Wednesday that he expects interest rates will rise by the end of this year and the company will look to cut expenses by $100 million. He said it will look to leverage the benefits of both in 2011 and 2012.
“There are a lot of opportunities to drive efficiencies in our businesses,” he said. “Executives will reengineer operations to make us more efficient.”
Todd Gibbons, the company’s chief financial officer, said in an interview Wednesday that 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 the asset management and securities servicing space and a large amount of that will be foreign.”
BNY Mellon’s fourth-quarter earnings rose to $594 million, or 49 cents a share, from $66 million, or 2 cents per share, a year earlier. Excluding certain charges, the company reported earnings of 60 cents, which beat analyst estimates by nine cents, according to Thomson Reuters. In the quarter, fee revenue rose 43% to $2.58 billion. 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.
The company’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 Ltd. from Lloyds Banking Group PLC. Insight Investment specializes in so-called liability-driven investment solutions, active fixed-income asset management and alternative asset management.
Ronald P. O’Hanley, the president and chief executive of the BNY Mellon Asset Management, said during the conference call that two-thirds of the company’s growth in asset management revenue came from outside of the United States. He said 50% of the company’s revenue is being generated in non-U.S. markets. Kelly said the company remains confident it can continue to grow its market share outside of the United States.
Gibbons said in an interview that a large percentage of BNY Mellon’s international assets are in Europe because the company is still developing its presence in the Asian Pacific market.
During the conference call, Gibbons said BNY Mellon is pleased with its revenue momentum “though it remains hampered by the low interest rate environment.”
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 that he has seen a “dramatic increase” in new business in its pipeline. He said more of it is coming from outside of the United States. He said the pipeline is “similar to the levels in the middle of the last decade.”
BNY Mellon remains “game” for further acquisitions, Kelly said. In addition to its acquisition of Insight, 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 have a very specialized model that focuses on asset management and securities servicing,” he said. “We will focus on those deals and look for them globally, but our hurdles are tough.”
One hurdle could be the Obama administration's proposed bank tax. Kelly said that the tax encourages banks to reduce their sheet, 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 isn’t “for the industry or our country,” he 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 that the company is still examining the proposed tax and it plans to discuss it further with regulators.
“We would like to have an influence [on the tax,]” 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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