Bank of New York Co. Inc. said its third-quarter earnings fell nearly 10% because of expenses associated with its asset swap with JPMorgan Chase & Co., but they rose slightly after adjusting for the expenses.
Net income fell 9.5% from a year earlier, to $352 million, or 46 cents a share. The results included $74 million of merger and integration costs; excluding those costs, earnings rose 9.5%, to $426 million, or 56 cents a share.
The average estimate of analysts had called for earnings of 55 cents a share, according to Thomson First Call.
On Oct. 1, Bank of New York traded its $3.1 billion retail and middle-market banking business, which has 338 branches and $14.5 billion of deposits, to JPMorgan Chase in exchange for its $2.8 billion corporate trust business and $150 million of cash. The deal was announced in April.
Todd Gibbons, a senior executive vice president and Bank of New York’s chief officer, said during its earnings conference call Thursday that the company also will absorb expenses associated with conversions and consolidation in the fourth quarter and next year.
Its stock fell 2.21% by midday Wednesday, to $34.04 a share.
Thomas A. Renyi, Bank of New York’s chairman and chief executive officer, said Thursday during its earnings conference call that he believes that when the dust settles, from the transaction and from the recent seasonal slump, Bank of New York will be positioned for success.
“This has been a watershed month for us in terms of repositioning our company to a pure trust and custody model,” he said. “These actions substantially complete the transformation of our business to focus on securities servicing and asset management.”
Servicing fees rose 4%, to $839 million, and private banking and asset-management fees jumped 23%, to $134 million, from a year earlier, but overall fees fell 8% from the second quarter.
Jacqueline Reeves, an analyst with BankAtlantic Bancorp Inc.’s Ryan Beck & Co. Inc., said in a research note that securities servicing generated 67% of Bank of New York’s fee income and 52% of its revenue in the third quarter.
Mr. Renyi said his company wants to continue to develop its overseas operations.
“Through these transactions we have significantly expanded our global corporate trust franchise and repositioned our execution business for better growth and higher returns on our invested capital,” he said. “With the new business mix we are in a better position to accelerate growth and generate attractive returns.”
Mr. Renyi said that Bank of New York’s “cross-border” assets under custody jumped 35%, to $4.2 trillion, and now account for 30% of the bank’s overall assets under custody. “That is where the growth is, and it reflects the growing global nature of our business,” he said.
Analysts said the strategy is common to all of the major trust banks.
“All of the fee-based banks have acknowledged that there are stronger growth metrics around the globe and outside of the U.S.,” said Gerard Cassidy, an analyst with Royal Bank of Canada’s RBC Capital Markets. “You are going to find the major trust banks are looking for acquisitions outside of the U.S. All of them have indicated to investors that the better growth opportunities are occurring globally. They are going to be looking all over the globe.”
Mr. Gibbons said during the conference call that Bank of New York is pleased with its business mix and is confident it can expand organically. “We are not out searching for additions, but if we find something modest that is attractive, we’ll give it some consideration.”
Mr. Renyi said on the call that that the company is developing capital and has “earmarked part of … [its] cash flow for small transactions,” which could include acquisitions to develop its operations in Europe.
“We want to leverage our name and distribution around the world,” he said.
This week the other major custody banking companies also posted profit increases. Profits rose 14% from a year earlier at Mellon Financial Corp. and 11% at Northern Trust Corp. and State Street Corp. But the price of each company’s stock slipped after they reported earnings that missed expectations.
Analysts said they were not surprised that profits missed forecasts, because market conditions had been sluggish and net interest margins had been under pressure.
