Mellon Financial Corp. said Wednesday its fourth-quarter results showed that its planned merger with Bank of New York Co. has not slowed growth in its asset management business or overall new-business pipeline.
The Pittsburgh companys earnings grew 13.9%, to $237 million, or 57 cents per share, from a year earlier. After adjusting for one-time items that included charges, a tax benefit, and a loss on a discontinued venture capital business sold during the quarter, earnings per share came to 64 cents, beating the 57 cents that analysts surveyed by Thomson Financial expected.
Assets under management increased 27%, to $995 billion, from a year earlier. The October purchase of Scottish investment manager Walter Scott & Partners added more than $28 billion of managed assets. Assets under custody increased 15%, to $4.49 trillion, from the year before.
Revenue climbed to $1.52 billion, from $1.28 billion, last year. Investment management fee revenue rose 52% year-over-year, to $797 million, and 39% from the third quarter. Michael A. Bryson, Mellons chief financial officer, said the results reflected stronger performance fees, improved equity markets, and the Walter Scott deal.
Mellon executives said its pipeline of new business in asset servicing and asset management exceeded the levels reached before the December announcement of its deal with Bank of New York. James P. Palermo, Mellons vice chairman of asset servicing, said his business has signed up 12 clients, with $50 billion of new assets, since the deal.
The pipeline is stronger than it was in the third quarter and slightly below where it was at a year ago, which was really a peak period for us, Mr. Palermo said.
Still, analysts said they were taking a wait-and-see approach on how well Mellon would execute its pledge to retain all its business much less develop new business in the first half of this year. Most expect some attrition during the closing of the deal and integration of the two companies to create the worlds largest securities servicing firm.
Gerard Cassidy, an analyst at Royal Bank of Canadas RBC Capital Markets, said the groundwork for a lot of the business generated in the fourth quarter would have been laid before the deal was announced.
They are not out of the woods yet, Mr. Cassidy said. The first quarter and the second quarter will give us a better feel as to whether Mellon is winning new customers despite the merger. That will be the true test for the company.
He said he expects Mellon to deliver strong results in the first half of this year but not as strong as the fourth quarters.
Mark Fitzgibbon, an analyst at Sandler ONeill & Partners LP, said he does not give much weight to pipeline figures.
Pipeline numbers never correlate perfectly with the actual business companies bring in, he said. Until it is brought in, I want to wait and see.
In a deal this size, he added, there is always a significant amount of business lost. It might not come immediately. It might take six months to a year, but we will see attrition.
Robert P. Kelly, Mellons chairman, president, and chief executive officer, said management teams are working on integration planning and he expects the next level of management will be announced in March.
This is a three-year strategy, and we are still early in the process, he said. This merger will strengthen our offering and allow us to be a formidable global competitor.
Mellons fourth-quarter results included a $61 million loss on the sale of its venture capital portfolios to Goldman Sachs Group Inc., part of an effort to part with noncore business units. The company sold its human resources outsourcing business in May 2005 and in August announced it would sell its insurance premium finance businesses, Afco Credit Corp. of New York and Cafo Inc. of Toronto to Branch Banking and Trust Co., the flagship banking subsidiary of BB&T Corp. in Winston-Salem, N.C.
Mellons stock fell 0.92% in midday trading, to $43.02 a share.
