BNY Mellon (BK) Q2 Earnings Beat Estimates As Costs Decline
Zacks Investment Research | Jul 17, 2019 07:37AM ET
The Bank of New York Mellon Corporation’s (NYSE:BK) second-quarter 2019 earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 94 cents. However, the figure reflects a decline of 1.9% from the prior-year quarter.
Results benefited from a decline in expenses along with growth in assets under management (AUM). Moreover, the company’s capital position improved in the quarter. However, a decline in revenues was a headwind.
Net income applicable to common shareholders for the quarter under review was $969 million, down from $1.1 billion recorded in the prior-year quarter.
Revenues Decline, Costs Drop
Total revenues (GAAP basis), excluding income from consolidated investment management funds declined 5.1% year over year to $3.91 billion. The figure marginally surpassed the Zacks Consensus Estimate of $3.90 billion.
Net interest revenues, on a fully taxable-equivalent basis (non-GAAP basis), were $806 million, down 12.5% year over year. This decline was due to lower non-interest bearing deposits, and loan balances and higher deposit rates, partly offset by higher asset yields.
Also, non-GAAP net interest margin (FTE basis) contracted 14 basis points year over year to 1.12%.
Total fee and other revenues declined 3.1% year over year to $3.11 billion. This decrease was due to a fall in all components of fee revenues except for total investment services fees.
Total non-interest expenses were $2.65 billion, down nearly 3.6% year over year. This reflects a decrease in all expense components, except for professional, legal and other purchased services, software and equipment, and sub-custodian and clearing costs.
Solid Asset Position
As of Jun 30, 2019, AUM was $1.8 trillion, up 2.1% year over year. This reflects higher market value, partly offset by net outflows and the unfavorable impact of stronger U.S. dollar.
Assets under custody and/or administration of $35.5 trillion increased 5.7% year over year, reflecting higher market values and net new businesses, partly offset by the unfavorable impact of stronger U.S. dollar.
Credit Quality: Mixed Bag
As of Jun 30, 2019, non-performing assets were $186 million, up from $82 million registered at the end of the prior-year quarter. Provision for credit losses in the quarter under review was a benefit of $8 million compared with a benefit of $3 million in the year-ago quarter. Allowance for loan losses decreased 6.4% year over year to $146 million.
Capital Position Improves
As of Jun 30, 2019, common equity Tier 1 ratio was 11.2% compared with 11% as of Jun 30, 2018. Tier 1 Leverage ratio was 6.8%, up from 6.7% registered as of Jun 30, 2018.
Capital Deployment Update
During the second quarter, BNY Mellon bought back 15.3 million shares for $750 million. Further, it paid dividends worth $270 million to common shareholders.
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Our Viewpoint
While the company’s restructuring initiatives and inorganic growth strategy will go a long way in supporting its bottom line; concentration risk, rising from significant dependence on fee-based income, remains a major near-term concern. Moreover, higher expenses (mainly due to rise in investment-related costs, and litigation and restructuring charges) are likely to hamper bottom-line growth to some extent.
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