Bank of New York Mellon (BK), the world's largest custody bank, said third-quarter earnings climbed 11% as rising stock prices helped expand customer assets.

Net income increased to $720 million, or 61 cents a share, from $651 million, or 53 cents, a year earlier, the New York bank said today in a statement. Analysts had expected the company to report a profit of 54 cents a share, according to the average of 16 estimates in a Bloomberg survey.

"It was a better than expected quarter," said Marty Mosby, an analyst at Guggenheim Securities LLC. "It showed they can generate some revenue growth while still holding down expenses." Mosby, who rates the shares a buy, predicts improvement next year as the bank adds customers and benefits from cost-cutting.

Custody banks have been affected by competing forces as gains in stock prices boost fees for overseeing and managing client money while low interest rates force them to waive fees on money funds, erode yields on portfolios and reduce returns on securities lending. BNY Mellon, State Street (STT) and Northern Trust (NTRS) have all announced reductions in staff and spending as a way to preserve profits.

At BNY Mellon, assets under custody rose 7.7%, to $27.9 trillion, driven by higher market values and $522 billion of new business wins. Fees from investment services fell 6.5%, to $1.68 billion, the result of lower revenue in two units and the sale of the shareowner services business in the fourth quarter of 2011.

Assets under management climbed 13%, to $1.4 trillion, helping increase investment-management fees by 6.9%, to $779 million.

Foreign exchange revenue was $121 million, a drop of 45% from the same quarter a year ago, on lower volatility and volumes.

Earnings were boosted by four cents a share from a lower- than-expected effective tax rate, the bank said in a statement. Noninterest expenses fell 2.4%.

BNY Mellon last year trimmed jobs and set a target to save as much as $700 million by 2015 through operational improvements.

The bank, whose shares are cheaper today than they were 15 years ago, has attracted the interest of value investors, including Warren Buffett. His Omaha-based Berkshire Hathaway bought 13.1 million shares in the second quarter, boosting its stake to 18.7 million shares, according to data compiled by Bloomberg.

BNY Mellon has been sued by several states and the U.S. Attorney in Manhattan over pricing of foreign-currency trades on behalf of clients.

The cases center on the charges for small foreign-exchange transactions handled automatically on behalf of pension funds, a service known as standing instruction. The plaintiffs say the bank misled and overcharged them on standing instruction trades. BNY Mellon said it acted properly and offered clients competitive pricing.

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