Fitch: Bank of New York Mellon Reports Good 2Q15 Revenue Growth

NEW YORK--()--According to Fitch Ratings, the Bank of New York Mellon (BK) reported good second quarter 2015 (2Q15) core revenue growth, particularly against the year ago period. Total revenue for the quarter totaled $3.9 billion, an improvement of 2.5% from the previous quarter, and up 3.8% from the year ago period. Revenue growth and return on tangible equity were mainly in line with management's long-term stated targets.

Overall revenue growth was primarily driven by greater investment services fee and net interest revenues reflecting organic growth and higher market values. Investment management revenues were flat to slightly down vs. prior periods reflecting the stronger U.S. dollar and lower performance fees. While foreign exchange (FX) revenue dropped from the prior quarter, it remained stronger than in previous quarters due to increased FX volatility. Core net income of $868 million was up 21% vs. the year ago quarter owing to the good operating leverage. The decrease in expenses is largely reflective of BK's continuing efforts to leverage scale, implement expense controls and reduce structural costs across the organization.

BK grew net interest revenue (NIR) during the quarter as part of its efforts to increase securities and loans holdings while reducing cash balances. This coupled with lower deposit costs and interest rate hedging improved NIR 8% vs. the prior quarter, while NIM grew slightly to 1.0%. Despite the recent improvement, Fitch expects that BK's NIR and net interest margin (NIM) will remain pressured until short-term rates begin to rise, although poised to benefit if and when this occurs.

Assets under custody and administration (AUC/A) have remained relatively flat despite new business and higher markets due to the strengthening U.S. dollar. AUC/A stood at $28.6 trillion at quarter end. Similarly, assets under management (AUM) of $1.7 trillion also remains flat despite new business and the Cutwater acquisition, also owing to the unfavorable impact of the stronger U.S. dollar.

BK's risk-adjusted capital profile remains solid and has allowed the company to continue with its planned dividend and share repurchase policies. The bank reported an estimated fully phased-in Basel III CET1 of 9.9% (advanced approach), after adopting new accounting guidance (ASU 2015-02) related to consolidation of certain structured vehicles, which effectively reduced risk-weighted assets by $13 billion.

BK continues to make progress towards increasing its supplementary leverage (SLR) ratio and at quarter end reported 4.6% at the holding company level. Fitch is of the view that BK has options and time to fully comply. Moreover, Fitch continues to believe that the U.S. enhanced SLR will be more of a constraint for BK over the near term. Notably, following the U.S. Federal Reserve's approval of Risk-based Capital Surcharges for Global Systemically Important Banks Holding Companies, BK's GSIB buffer remained at 1.0% under either Method 1 or 2 based on current estimates.

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Contacts

Fitch Ratings
Primary Analyst
Christopher Wolfe
Managing Director
+1-212-908-0771
33 Whitehall Street
New York, NY 10004
or
Doriana Gamboa
Senior Director
+1-212-908-0865
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Christopher Wolfe
Managing Director
+1-212-908-0771
33 Whitehall Street
New York, NY 10004
or
Doriana Gamboa
Senior Director
+1-212-908-0865
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com