BNY Mellons net income dropped 37% in the second quarter to $466 million, mostly due to a $350 million pre-tax litigation charge related to its settlement of a class-action lawsuit involving losses clients incurred from the 2008 collapse of structured investment vehicle Sigma Finance.
The worlds biggest custodian says it had $27.1 trillion in assets under custody and administration at the end of the second quarter, rising 2% above its previous-quarter balance. BNY Mellon says the increase was driven by net new business offset by lower equity market values.
Foreign exchange revenue in the second quarter totaled $157 million, decreasing 15% year-on-year and increasing 15% from the previous quarter. The decrease was due to lower volatility and volumes, BNY Mellon says, while the sequential increase was due to higher volumes. Year to date, foreign exchange and other trading revenue lags that seen in the first half of 2011 by around 13%.
The custodian had some relief in the quarter, however, with regard to the cadre of FX-related lawsuits it is facing. In April, a California judge dismissed several claims filed against BNY Mellon by whistleblower FX Analytics and ten public pensions in the state, and the following month a Virginia Circuit Court dismissed a suit claiming BNY Mellon defrauded state pension funds on FX transactions. But the custodian still faces similar lawsuits in numerous other jurisdictions.
Meanwhile, investment services fees, which includes depositary receipts, clearing, securities lending and other activities, totaled $1.7 billion in the second quarter, a slight increase of 2% over the previous quarter and a 5% decrease year-on-year. The decrease was due to its sale of its Shareholder Services business in the fourth quarter last year, which led to lower depositary receipts revenue and higher money market fee waivers.
Total revenue for GAAP accounting purposes was $3.62 billion in the second quarter, a 1% decrease over the first quarter of this year and a 6% decrease from the second quarter last year.
Our strengthened capital positions us as a preferred counterparty, and provides us greater flexibility for ongoing investment while continuing to return capital to shareholders,” Gerald L. Hassell, chairman, president and CEO of BNY Mellon said in the firms quarterly statement.
“Also in the second quarter, we were able to put significant litigation behind us with no material impact on our capital,” he added.
(CG)