Bank of New York Mellon Corp., the world’s largest custody bank, said third-quarter earnings climbed a bigger-than-estimated 11 percent as rising stock prices helped expand customer assets.

Net income increased to $720 million, or 61 cents a share, from $651 million, or 53 cents, a year earlier, the New York- based bank said today in a statement. Analysts had expected the New York-based company to report a profit of 54 cents a share, according to the average of 16 estimates in a Bloomberg survey.

“It showed they can generate some revenue growth while still holding down expenses,” Marty Mosby, a Memphis, Tennessee-based analyst at Guggenheim Securities LLC, said in a telephone interview. Mosby, who rates the shares a buy, predicts improvement next year as the bank adds customers and benefits from cost-cutting.

Custody banks have been affected by competing forces as gains in stock prices boost fees for overseeing and managing client money while low interest rates force them to waive fees on money funds, erode yields on portfolios and reduce returns on securities lending. BNY Mellon, State Street Corp. and Northern Trust Corp. have all announced reductions in staff and spending as a way to preserve profits.

Northern Trust, the third-largest U.S. independent custody bank, today said third-quarter profit rose 4.9 percent to $178.8 million, or 73 cents a share, from $170.4 million, or 70 cents, a year earlier. Analysts had expected earnings of 74 cents a share, according to the average of 16 estimates.

Shares Rise

BNY Mellon rose 5.3 percent to $24.80 at 10:25 a.m. in New York trading, the most in more than a month. Northern Trust gained 1 percent to $48.01.

State Street, the third-largest custody bank, yesterday reported third-quarter operating profit that beat analysts’ estimates as it earned higher fees for managing client money.

At Chicago-based Northern Trust, assets under custody rose 14 percent to $4.76 trillion and assets under management gained 16 percent to $750 billion.

Chief Executive Officer Frederick Waddell said in a statement that the gains were offset, in part, by “the continued headwinds posed by lower interest rates, market activity and volatility.”

The Federal Reserve in September said it will purchase $40 billion in mortgage bonds a month and hold its main interest rate near zero until at least mid-2015.

Cutting Jobs

BNY Mellon, which is led by Chief Executive Officer Gerald Hassell, said assets under custody rose 7.7 percent to $27.9 trillion, driven by higher market values and $522 billion of new business wins. Assets under management climbed 13 percent to $1.4 trillion, helping increase investment-management fees by 6.9 percent to $779 million.

BNY Mellon last year trimmed jobs and set a target to save as much as $700 million by 2015 through operational improvements. The bank said in November that it expected its fee revenue to grow 3 percent to 5 percent a year from 2012 to 2014, outpacing a projected 2 percent to 3 percent increase in expenses.

Non-interest expenses fell 2.4 percent. Earnings were boosted by four cents a share from a lower-than-expected effective tax rate, the bank said in a statement.

Fees from investment services fell 6.5 percent to $1.68 billion, the result of lower revenue in two units and the sale of the shareowner services business in the fourth quarter of 2011.

‘Huge Clients’

BNY Mellon has tried to raise prices with mixed results. Timothy Keaney, vice chairman and asset-servicing chief, said at an investor conference in September that the bank had won higher prices from some of its smaller customers.

“The bad news is on the strategic client base,” he said. “We do not have any pricing power today. These are huge clients.”

Foreign exchange revenue was $121 million, a drop of 45 percent from the same quarter a year ago, on lower volatility and volumes. BNY Mellon’s net interest margin, the difference between what it pays on deposits and receives on loans and investments, fell to 1.2 percent from 1.3 percent.

Buffett Buys

The bank, whose shares are cheaper today than they were 15 years ago, has attracted the interest of value investors, including Warren Buffett. His Omaha-based Berkshire Hathaway Inc. bought 13.1 million shares in the second quarter, boosting its stake to 18.7 million shares, according to data compiled by Bloomberg.

BNY Mellon has been sued by several states and the U.S. Attorney in Manhattan over pricing of foreign-currency trades on behalf of clients.

The cases center on the charges for small foreign-exchange transactions handled automatically on behalf of pension funds, a service known as standing instruction. The plaintiffs say the bank misled and overcharged them on standing instruction trades. BNY Mellon said it acted properly and offered clients competitive pricing.

Custody banks keep records, track performance and lend securities for institutional investors. BNY Mellon also manages investments for individual and institutions.

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