Improved BNY Mellon results buy time with activists

Bank of New York Mellon, the world's largest custody bank, delivered improved quarterly results which may buy executives time in their struggle with activist investors.

Net income rose 16 per cent to $766m compared with the first quarter of 2014; earnings per share rose 18 per cent to $0.67. Analysts had expected $0.59 a share in earnings.

Gerald Hassell, chief executive, said the results showed "continued progress in executing on our strategic priorities", with "success in holding our expenses in check".

Marcato Capital Management, an activist fund, has called for Mr Hassell to be fired, in part because of what it describes as a persistent failure to keep costs under control. Trian Fund Management, an activist fund led by Nelson Peltz, has also demanded improvements at BNY Mellon and won a seat on the board, although Trian has stopped short of calling for the management to be ousted.

BNY Mellon keeps records and lends securities for institutional clients and manages investment for institutions and individuals.

Choppy foreign exchange markets helped BNY Mellon in the quarter, with trading revenues for the segment up 67 per cent at $229m "driven by higher volumes and volatility". A swing in the value of the Swiss franc was among the turbulent activity in currencies during the quarter and caused some banks, including Citigroup, to lose money but BNY Mellon had been expected to profit since it takes relatively little risk in the market.

During the quarter BNY Mellon paid $700m to settle allegations from the US attorney in Manhattan Preet Bharara and New York attorney-general Eric Schneiderman that the bank misled investors about the price it was transacting foreign exchange on their behalf. In a separate legal problem earlier this month BNY Mellon paid £126m to settle charges from the UK's Financial Conduct Authority that it failed to comply with rules that require customer accounts to be kept properly ringfenced.

Overall revenue increased 6 per cent to $3.9bn. That was ahead of analysts' estimates but the biggest beat came on the expense line, the area where BNY Mellon has been most criticised for having too many people and paying them too much. Non-interest expense fell 1 per cent to $2.7bn. Mr Hassell said the company was "streamlining our organisation, utilising technology to increase efficiency and reducing our structural costs".

Return on equity rose to 8.8 per cent, albeit still below the industry's cost of capital which is assumed to be about 10 per cent.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation