Bank of New York Mellon Corp (BK:US)., the world's largest custody bank, said fourth-quarter earnings fell 18 percent because of a loss related to an equity investment.

Net income declined to $513 million, or 44 cents per share, from $622 million, or 53 cents, a year earlier, the New York-based bank said today in a statement. Excluding the $115 million after-tax loss, BNY Mellon earned $628 million, or 54 cents a share, meeting the estimate of 12 analysts in a Bloomberg survey. The bank didn't provide additional details on the investment loss.

Chief Executive Officer Gerald Hassell is focusing on winning new business and cutting costs to boost profit to combat the impact of low interest rates. Low rates force custody banks to waive fees on money funds, while eroding yields on portfolios and reducing returns on securities lending. BNY Mellon benefited from rising stock markets worldwide, helping to offset the interest-rate environment.

"The rate environment is still a significant drag," Marty Mosby, an analyst with Guggenheim Securities LLC in Hernando, Mississippi, said in a telephone interview. "When short-term rates finally rise, that will be a real kicker for the bank's earnings."

BNY Mellon reported earnings before the start of regular U.S. trading. The shares advanced 30 percent in the 12 months through yesterday, as Standard & Poor's 20-company index of asset managers and custody banks rose 38 percent.

Assets under custody rose 4.9 percent from a year earlier and 0.7 percent from the prior quarter to $27.6 trillion. Money managed for clients climbed 14 percent from the prior year and 3.3 percent in the quarter to $1.58 trillion. Both gains were driven by new business and higher stock prices.

BNY Mellon said its net interest margin, the spread it makes on loans compared with what it pays on what it borrows, was 1.09 percent, unchanged from the fourth quarter of 2012.

Like BNY Mellon, rival custody banks State Street Corp. (STT:US) and Northern Trust Corp. (NTRS:US) have responded to near-zero rates by reducing staff and expenses to protect profit margins. In 2011, BNY Mellon trimmed jobs and set a target to save as much as $700 million by 2015 through operational improvements. The bank, in a release today accompanying the earnings statement, said it has already met the savings target.

An emphasis on efficiency is critical, in part, because of cost pressures in the custody business, Hassell said in a presentation to analysts (BK:US) in New York last month.

"Pure custody is commoditized," Hassell said in December.

Hassell said to grow its business, BNY Mellon would concentrate on selling more services to the investment managers, endowments and pension funds it counts among its clients.

The bank plans to sell 1 Wall Street in Manhattan, the Art Deco skyscraper that serves as its corporate headquarters, and has hired brokers to find a smaller amount of space to lease elsewhere.

"We will only make the move if it makes sense financially," BNY Mellon spokesman Kevin Heine said in an interview last month.

He said the bank was exploring the possibility of shifting its headquarters to another location in downtown Manhattan, 101 Barclay Street.

Custody banks keep records, track performance and lend securities for institutional investors. BNY Mellon also manages investments for individuals and institutions.

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