While total revenue for BNY Mellon fell 7% year over year, the second quarter included some bright spots within Investor Services and Investment Management, while the bank also continued extensive expense cutting.
Total assets under custody and/or administration grew 9% year over year and 2% since last quarter to $28.5 trillion, primarily as a result of higher market values. Estimated new business wins for the quarter totaled $130 billion in AuC/A, down 35% from last year and 19% since last quarter.
Asset servicing fees did increase by 3% year over year and 1% since last quarter to just over $1 billion, through a combination of market conditions and business growth. Within these fees, however, securities lending revenue dropped from $50 million in the second quarter of last year to $46 million this year.
Clearing services also increased by 2% year over year and were essentially flat with last quarter. The increase came from higher mutual fund fees, which were partially offset by lower daily average revenue trades (DARTS) and money market fee waivers, says BNY Mellon.
However, issuer services fees decreased 21% year over year, which dragged down the Investment Services division of the bank to a 1% decrease year over year, though both were up 1% since last quarter. The total number of sponsored depositary receipt programs within this business decreased 2% year over year and 1% since last quarter to 1,316 programs.
Previously, BNY Mellon considered selling its Corporate Trust business, which along with Depositary Receipts make up the issuer services segment, but the bank announced this quarter that it would keep the Corporate Trust business, noting that although “the business has been impacted in the near-term by the macro environment, Corporate Trust remains a global market leader, continues to win new business and is well positioned to benefit from an increase in short-term interest rates.”
Aside from Investor Services, Investment Management reported fee increases of 5% year over year and 4% since last quarter, as a result of market conditions such as higher equity values, as well as new business wins, partially offset by higher money market fee waivers and lower performance fees.
The bank’s overall revenue was hurt, however, by far lower trading revenue—a 37% year over year drop in trading revenue to $130 million, which is primarily made up of foreign exchange trading and due largely to lower FX volatility.
As revenue has fallen, BNY Mellon has been focused on controlling expenses. Overall, expenses did actually increase this quarter, but “excluding amortization of intangible assets, M&I, litigation and restructuring charges, and a previously disclosed charge (recovery) related to investment management funds,” expenses dropped 4% year over year and 2% since last quarter. Primarily, the lower expenses came from decreases in staff and business expense costs, though sub-custodian, litigation and professional, legal and other purchased services expenses all increased due in part to regulation.
Business expenses decreased by 24% as the firm has discouraged internal travel (as opposed to client-centric travel) and used more video and audio conferencing internally. “Also last year, we had a substantial campaign on our marketing and branding efforts and we’ve reduced the spend associated with that. We are going to try to keep this discipline and sustain these levels,” said Gerald Hassell, chairman and CEO of BNY Mellon, during the company’s earnings call, according to a transcript from Seeking Alpha.
Employee expenses dropped 5% year over year, as incentives and benefits were cut. BNY Mellon will also save money long-term through the sale of its corporate headquarters in New York and moving to another office in Lower Manhattan.
The bank had a total of 51,100 full-time employees at the end of the quarter, up 300 from a year ago and down 300 from last quarter.
Lastly, the bank’s estimated common equity Tier 1 capital ratio under the fully phased-in Basel III advanced approach measured 10% for the quarter, down from 10.7% last quarter but up from 9.8% a year ago.
BNY Mellon's Asset Servicing Revenue Rises While Bank Cuts Expenses
While total revenue for BNY Mellon fell 7% year over year, the second quarter included some bright spots within Investor Services and Investment Management, while the bank also continued extensive expense cutting.