Bank of New York Mellon, the custody bank under pressure from activist investors to improve results, reported a 5% increase in first-quarter profit as it cut expenses and benefited from higher interest rates in the U.S.
Net income rose to $804 million, or 73 cents a share, from $766 million, or 67 cents, a year earlier. Analysts had expected earnings of 67 cents a share, the average of 12 estimates compiled by Bloomberg.
Chief Executive Gerald Hassell, 64, has worked to trim expenses as years of low interest rates reduced the bank's returns on client deposits and forced it to waive fees it gets on money-market funds. The bank recorded a 5.2% increase in net interest revenue after the Federal Reserve raised its benchmark lending rate in December. Fees for managing client money fell 6.3% as stock markets slumped in January and February.
"The drop in valuations created meaningful headwinds for all the banks, including BNY Mellon," Marty Mosby, an analyst with Vining Sparks, said in an interview before the results were released.
The Standard & Poor's 500 Index, a proxy for major U.S. stocks, dropped 11% this year through Feb. 11 before recouping the loss by the end of the first quarter. Money managers typically earn revenue on the average level of assets under management in a period, so that kind of volatility can be costly. Profit at BlackRock, the world's largest asset manager, fell 20% in the first three months of the year, the company said last week.
BNY Mellon reported earnings before the start of regular trading. The stock has lost 3.6% this year through Wednesday, compared with a gain of 0.4% for the 19-member Standard & Poor's index of asset managers and custody banks.
Trian Fund Management, the activist investment firm founded in 2005 and headed by Nelson Peltz, owns about 3% of BNY Mellon and its co-founder Ed Garden sits on the board of directors. Trian built its stake in the custody bank in 2014, seeing potential for improvement at a company that had lagged behind rivals in key measures of profitability.
Hassell sold the bank's headquarters at 1 Wall St. in New York and reduced the real estate his employees occupy. He also streamlined the bank's technology operations. Garden, at the company's annual meeting last week, praised the progress Hassell has made at increasing profit margins.
"It's clear management is performing at a high level," he said.
Custody banks such as BNY Mellon and State Street keep records, track performance and lend securities for institutional investors. BNY Mellon, like State Street, also manages investments for individuals and institutions.
The asset-management unit recently went through a change, as Curtis Arledge, who headed it since 2010, left the company in February to pursue other opportunities. He was replaced by Mitchell Harris, who already oversaw the day-to-day management of the investment businesses across the globe.