BNY Mellon's profit climbs, but deposit worries mount

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Lower taxes combined with higher asset-servicing fees to juice Bank of New York Mellon’s third-quarter profit, but a shrinking deposit base is raising concerns among investors.

Net income at the $350 billion-asset company rose 9% from the same quarter last year to $1.1 billion. Earnings per share of $1.06 were 2 cents better than the mean estimate of analysts compiled by FactSet Research Systems.

Total revenue increased 1% to $4.1 billion as fee revenue, the largest segment of revenue at BNY Mellon, was little changed at $3.2 billion. However, the provision for income taxes dropped 37% to $220 million, which contributed 5 cents per share to earnings.

“While we continued to benefit from a reduction in our tax rate related to the new tax law in the U.S. and from strong capital returns, our revenue growth was modest,” Chairman and CEO Charles Scharf said in a news release. “We did see reasonable growth in some of our businesses and remain confident that we can increase the rate of growth in the others.”

Asset servicing revenue rose 3% to $1.5 billion. Investment management fees increased 2% to $922 million.

Assets under custody and administration jumped 7% to $34.5 trillion. Assets under management rose 0.5% to $1.8 trillion.

Net interest revenue rose 6% to $891 million. The average yield on interest-earning assets improved 74 basis points to 2.33%.

During a Thursday morning conference call, analysts expressed concern about BNY Mellon’s rising deposit costs and suggested that the bank was neglecting its deposit management. Average deposits fell 3% to $193 billion, as the bank’s deposit makeup shifted toward more costly deposits. Interest bearing deposits increased 4% to $149 billion while noninterest bearing deposits fell 14% to $60.7 billion.

“We feel like we could do a better job at gathering deposits,” Scharf said during the conference call.

Noninterest expenses climbed 3% to $2.7 billion. Litigation expenses rose 2% in the quarter, reducing earnings by 5 cents per share. The company did not specify the total amount spent on litigation or mention a specific legal case as the reason for the increase.

Technology spending rose, and the company booked those costs in several categories, including software and equipment costs, which increased 12% to $262 million, and professional services, which climbed 9% to $332 million.

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