Bank of New York Mellon Corp. expects to add $250 million to $400 million of revenue by 2011 as a result of synergies from the megamerger it completed in July, the company's top executives said during its third-quarter earnings call on Thursday.
Gerald L. Hassell, the president of the New York company, which reported 11% profit growth for the quarter, said it has identified 71 "revenue synergy opportunities." The top 15 ideas should generate 60% of the extra revenue forecast for the next four years, he said.
"The largest opportunity is the cross-selling of asset management and asset servicing, and that is already getting good traction," Mr. Hassell said. "The China mandate is a good example, and we are seeing opportunities like that around the world."
Bank of New York Mellon in September won a $4 billion mandate to be subadviser and global custodian for China Southern Fund Management Co. Mr. Hassell said his company expects to announce another large international mandate in the next couple of weeks.
Robert P. Kelly, Bank of New York Mellon's chief executive officer, said the company has seen rapid growth overseas. Overall, Bank of New York Mellon is generating 31% of its revenue abroad, up from 25% a year earlier. About 36% of its asset management business and 39% of its asset servicing business is generated overseas, he said.
"We are growing faster in Europe and Asia than we are in the U.S., and we expect that will continue," he said during the conference call. "We have great momentum overseas."
In addition to China, Mr. Hassell said, the company won mandates in Korea, Ireland, and elsewhere in Europe in the third quarter. "We had 16 wins for 16 bids we made for mid- and back-office services, accounting for $220 billion in assets," he said.
Analysts said Bank of New York Mellon's expectations for incremental revenue might be more than just post-merger optimism.
"Historically, I dismiss these expectations because companies can't reach the gains they expect, but in this case I am more optimistic — particularly when it comes to the cash management business for the custody clients of legacy Bank of New York customers," said Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, in an interview on Thursday. "Bank of New York didn't have cash management services to offer to its customers and outsourced these services to a third party, but Mellon has that business. It is something that is really easily cross-sold."
There appears to be "real legitimacy" to BNY Mellon's revenue synergies, Mr. Cassidy said, and "we'll be able to see some improvement in revenue due to this."
Bank of New York Mellon's revenue grew 11%, to $640 million, or 56 cents per share, in the quarter — the first period for which it reported as a combined entity. Excluding merger and integration costs, earnings per share came to 67 cents, six cents above the average of analyst forecasts compiled by Thomson Financial.
Assets under custody rose 22%, to $20.8 trillion, and assets under management were up 19%, at $1.1 trillion.
Analysts said Bank of New York Mellon's results were strong, considering the market conditions. Andrew Marquardt, an analyst at Fox-Pitt Kelton, wrote that the results were generally better than expected, particularly within the securities servicing, asset management, and foreign exchange businesses. The results were consistent with those at other trust banks, he said.
Rival custody banks also posted higher profits this week. Earnings were up 27% at Chicago's Northern Trust Corp. and 29% at Boston's State Street Corp. Mr. Cassidy said that, though Bank of New York Mellon had "very good" results in the quarter, State Street "shot the lights out."
Mr. Kelly said Bank of New York Mellon has continued to compete well with its peers during the merger transition period. From January through June, the company won 41 of the 82 new-business mandates it bid on, gaining $500 billion of assets.
"It takes longer to generate revenue synergies than expense synergies," the chief executive said. "We went through a detailed process, and we have good processes in place to track our progress, and we will track it closely."
Mr. Kelly added that, in the near term, domestically, the company wants to expand its wealth management business in the New York metropolitan area. "We want to bring the legacy Mellon products to the New York City market," he said. "We are focused on building the sales organization in Manhattan and around the tri-state region. We have seen some early results in the third quarter, and I expect to be able to deliver more capabilities and bring more of the combined offering out … . Longer term, I want to expand this business in Texas, the Southwest, and the Midwest, but our first priority is in the New York metropolitan area."
Bank of New York Mellon's stock price rose 3.53% by early afternoon Thursday, to $45.51.
