Bank of New York Mellon Corp. and Northern Trust Corp. plan to focus on internal growth until economic conditions steady rather than match some of their competitors' avid search for acquisitions.
Robert Kelly, Bank of New York Mellon's chief executive officer, said during its earnings call Wednesday that there are plenty of opportunities in the United States to buy asset management companies, but "that is not high on our priority list." He said the company is focused on organic growth as it grapples with losses in its investment portfolio related to residential real estate.
Any deal would "have to be something kind of unique to be of interest, and financially it has to be kind of a home run," Kelly said.
Steven L. Fradkin, Northern Trust chief financial officer, presented a similar message in his earnings call Wednesday.
"We are well positioned with capital and flexibility, but our story has always been one of organic growth," he said. "While we have had some modest acquisitions, we have sidestepped problems by avoiding acquisitions that didn't turn out well. We are always looking at opportunities. The number of opportunities is more and the pricing is better, but there is no fundamental shift in our views. We have proven over time we know how to grow this business organically."
The comments from Kelly and Fradkin contrasted with remarks a day earlier by Ronald Logue, the chairman and chief executive of State Street Corp. Logue said he wants to use the Boston company's capital for acquisitions overseas.
Bank of New York Mellon's tangible common equity ratio rose to 4.8% in the second quarter, from 4.2% in the previous quarter. Northern Trust raised $834.5 million of additional capital during the second quarter. Its TCE ratio stood at 7.6% at the end of the second quarter, up from 6% a year earlier. State Street said Tuesday that it had a TCE ratio of 4.96% and expected it to reach 6.5% by the end of the year.
Bank of New York Mellon's tangible common equity ratio remains "in the middle of the pack," Kelly said, "and given our mix of businesses and the composition of our businesses, I think we want to be around median from a capital standpoint."
Fradkin said Northern Trust remains well capitalized "in absolute terms versus our peers and relative to the conservative risk profile and appetite" of the Chicago company.
Analysts said Bank of New York Mellon and Northern Trust have a history of being cautious with acquisitions. Marty Mosby of First Horizon National Corp.'s FTN Equity Capital Markets said both typically opt for organic growth.
"Northern Trust has always had ample capital to look for acquisitions, but has always been choosy about how it wants to grow its business, because organic growth has been so strong they haven't needed to acquire," Mosby said.
Other analysts said that unlike State Street, which does not make loans, Bank of New York Mellon and Northern Trust are saddled with loan portfolios, which forces them to be more guarded. "State Street is not a big lender, but Northern and Bank of New York Mellon have to consider their loan portfolios when they consider their strategies going forward," said Gerard Cassidy, an analyst at RBC Capital Markets who covers the trust banking companies.
Bank of New York said investment losses rose 68% in the second quarter to $256 million from a year earlier because of declines in residential real estate. The writedowns were mostly on securities backed by pools of home loans.
The New York company's profits fell 43% to $176 million. The per-share profit was 52 cents, meeting analyst estimates, according to Thomson Reuters.
At Northern Trust, credit-loss provisions rose sixfold, to $60 million. Nonperforming loans were $227.9 million, versus $167.8 million a quarter earlier and $30.1 million a year earlier.
Northern Trust's second-quarter earnings rose 46%, to $314.2 million, or 95 cents a share. Revenue fell 4.5%, to $1.05 billion. Analysts on average expected revenue of $986 million, according to Thomson Reuters.
