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BNY Mellon's (BK) Q4 Earnings, Revenues & Costs Decline Y/Y

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Bank of New York Mellon Corporation’s (BK - Free Report) fourth-quarter 2020 adjusted earnings per share of 96 cents were 5% lower than the prior-year quarter’s level. The Zacks Consensus Estimate for earnings was 93 cents.

Results for the reported quarter reflect growth in asset balances. Also, lower expenses supported results to some extent. However, a decline in revenues was an undermining factor.

Net income applicable to common shareholders (GAAP basis) was $702 million or 79 cents per share, down from $1.39 billion or $1.52 per share recorded in the prior-year quarter.

For 2020, adjusted earnings of $4.01 per share were marginally lower than the previous year’s reported figure. The Zacks Consensus Estimate for earnings was $3.96. Net income applicable to common shareholders (GAAP basis) was $3.42 billion or $3.83 per share, down from $4.27 billion or $4.51 per share recorded in 2019.

Revenues & Expenses Decline

Total quarterly revenues (GAAP basis), excluding income from consolidated investment management funds, declined 20.1% year over year to $3.80 billion. The figure lagged the Zacks Consensus Estimate of $3.85 billion.

For the year, revenues (GAAP basis), excluding income from consolidated investment management funds, declined 4.2% year over year to $15.72 billion. The figure lagged the Zacks Consensus Estimate of $15.78 billion.

Quarterly net interest revenues on a fully taxable-equivalent basis (non-GAAP basis) were $683 million, down 16.4% year over year. The decline was due to lower interest rates on interest-earning assets and the impact of hedging activities, partially offset by benefits from low deposit and funding rates, and higher deposits and securities portfolio.

Non-GAAP net interest margin (FTE basis) contracted 37 basis points year over year to 0.72%.

Total fee and other revenues declined 20.9% year over year to $3.12 billion. The fall was due to a decline in total investment services fees, foreign exchange and other trading revenues, distribution and servicing fees, and investment and other income.

Total non-interest expenses were $2.93 billion, down 1.3% from the prior-year quarter. The decline was due to a fall in staff expenses, sub-custodian and clearing costs, distribution and servicing costs, bank assessment charges, business development costs, and costs related to the amortization of intangible assets.

Asset Position Strong

As of Dec 31, 2020, assets under management (AUM) were $2.20 trillion, up 15% year over year. The rise was mainly driven by higher market values, the favorable impact of a weaker U.S. dollar and net inflows.

Assets under custody and/or administration of $41.1 trillion grew 10.8% year over year, reflecting higher market values, net new business, higher client inflows and the favorable impact of a weaker U.S. dollar.

Credit Quality Deteriorates

As of Dec 31, 2020, non-performing assets were $89 million, unchanged year over year.

However, allowance for loan losses — as a percentage of total loans — was 0.63%, up 41 basis points from the prior-year quarter. Moreover, provision for credit losses was $15 million against a provision benefit of $8 million recorded in the year-ago quarter.

Capital Ratios Mixed

As of Dec 31, 2020, common equity Tier 1 ratio was 13.1% compared with 11.5% on Dec 31, 2019. Tier 1 Leverage ratio was 6.3%, down from 6.6% on Dec 31, 2019.

Our Viewpoint

BNY Mellon’s global reach, strong balance sheet position and solid AUM balance will go a long way in supporting profitability. However, near-zero interest rates will likely continue to hurt margins in the near term.

Currently, BNY Mellon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule of Other Banks

KeyCorp (KEY - Free Report) and SVB Financial Group (SIVB - Free Report) are scheduled to release results tomorrow. East West Bancorp (EWBC - Free Report) is scheduled to announce quarterly numbers on Jan 28.

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