BNY Mellon’s shares tumble as revenue growth stalls

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Bank of New York Mellon’s shares fell sharply Thursday after the nation’s largest custody bank reported weaker-than-expected fourth-quarter profits.

Though the $382 billion-asset company reported net income of $1.4 billion in the fourth quarter, up 67% from the same period in 2018, the results were skewed by one-time events in both the 2018 and 2019 quarters.

Earnings per share were $1.52, but would have been 50 cents lower if not for a $460 million gain on the sale of an equity investment, the company said Thursday. Analysts polled by FactSet Research Systems had expected earnings per share to come in at around $1.40.

Fee revenue climbed 26% year over year, but excluding the gain on the sale, fees from investment services and investment management were essentially flat. Meanwhile, interest revenue declined 8% year over year to $815 million.

The results clearly disappointed investors. BNY Mellon’s shares were down nearly 7.7% midday Thursday to $46.81.

In a conference call with analysts, interim CEO Thomas Gibbons said that this past year “was not without its challenges” as three interest rate cuts “constrained” client activity.

Still, he said that the company is starting to reap the benefits of the roughly $3 billion it spent on technology last year and that it will spend even more this year as it aims to drive revenue growth through improved products, service and efficiency.

Gibbons highlighted the custody bank’s investments in loan and payments services platforms, data analytics, artificial intelligence and application programming interfaces, and he said that a key priority in 2020 is developing more partnerships with fintechs.

Just this week, BNY Mellon announced a partnership with a third party that provides enhanced reviews of client assets.

“Our technology priorities center on improving quality, developing innovative products and services and enhancing efficiency for our clients, which in turn create cost savings for us as well as them,” Gibbons told investment analysts.

Despite the hefty investments in technology, expenses declined 1% year over year, due primarily to reduced real estate costs.

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