'I know it’s disappointing,' BNY Mellon chief says of 1Q

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Bank of New York Mellon reported a first-quarter profit decline, as it was hammered by a sharp spike deposit costs and by clients withdrawing funds in its asset management business.

Net income at the $346 billion-asset custody bank dropped 20% to $910 million year over year. Earnings per share of 94 cents fell 2 cents short of the mean estimate of analysts compiled by FactSet Research Systems.

The average rate BNY Mellon paid on interest-bearing deposits climbed 69 basis points, to 0.99%, and the bank’s total deposit mix shifted more heavily to interest-bearing deposits. Total interest expense more than doubled, to $1.1 billion.

BNY Mellon shares fell more than 9% to $48.42 in morning trading.

Despite the profit decline, Chairman and CEO Charlie Scharf said he’s making broad changes to the company’s operations and those improvements are gradually taking hold.

“We’re not going to hide behind facts of the quarter, right?” Scharf said during a Wednesday morning conference call. “I know it’s disappointing.”

“But when we look at the underlying metrics of the progress that we're making … we feel very good about the pipelines and the types of things that we're seeing,” he said. “But it will take time to show up in the numbers.”

One of Scharf’s initiatives, announced earlier this month, is a partnership with BlackRock to provide a combination of data and accounting tools with an investment management platform.

Fee revenue, excluding securities gains, fell 9% to $3 billion. BNY Mellon cited the negative impact of foreign currency translation, outflows from its asset management business and other items.

Revenue from most of the bank’s largest business lines, including asset servicing and asset management, declined. Fees from investment management and performance, for example, dropped 11% to $841 million.

Total assets under custody and administration rose 3%, to $34.5 trillion. Assets under management fell 1% to $1.8 trillion.

Net interest revenue dropped 8%, to $841 million. The bank recorded a $7 million loan-loss provision from its exposure to the Pacific Gas & Electric bankruptcy.

Noninterest expense declined 1% to $2.7 billion thanks to the favorable impact of the stronger U.S. dollar, lower incentive payments to employees and lower bank assessment charges.

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