July 23 (Reuters) - (The following statement was released by the rating agency)
The Bank of New York Mellon (BK) reported second quarter 2013 (2Q‘13) net income of $833 million on stronger revenue, according to Fitch Ratings. Core revenues increased 6% on a linked quarter basis and 5% on year-over-year basis reflecting higher market values and solid business volumes. Revenue growth was fairly broad based during the quarter, while expenses were controlled resulting in solid net income.
Fee revenues benefitted from stronger equity markets during the quarter. In aggregate, fee revenues were up 13% versus 1Q‘13. Within fee income, asset servicing posted a 2% increase reflecting higher securities lending volumes and increased asset servicing fees on new business. Issuer services logged a strong increase of 24% relative to 1Q‘13 due to increased corporate actions and technology reimbursements. Foreign exchange also posted healthy increases, having been on a declining trend over the past few quarters on the volatility in foreign exchange markets. The good growth in fee revenues and rally in financial markets reinforces the strong interdependence between fees and markets.
Assets under Custody and Administration (AUC/A) remained flat during the quarter and came in at $26.2 trillion, while assets under management (AUM) were similarly flat at $1.4 trillion. Although AUM had decent inflows of $20 billion during the quarter, these were largely offset by $17 billion in losses due to market and currency impacts.
BK generated a modest increase in net interest income (NII) due to a changing mix of earning assets and lower funding costs. Net interest margin (NIM) improved a few basis points to 1.15%. At this point in the interest rate cycle, Fitch would consider BK’s NII and NIM to be at or near cyclical lows and thus should see improvement if and when short-term rates increase.
BK reported that its Basel III Tier 1 Common (T1C) ratio was 9.3% following the release of U.S. bank regulatory final rules implementing the Basel III framework. The T1C ratio was down slightly from the previously estimated 9.4% due to a mix of capital generation, AOCI deduction, and refinements of risk-weighted assets. Although Fitch considers BK’s risk-adjusted ratios to be solid, the recently announced notice of proposed rulemaking on the enhanced supplementary leverage ratio for large banks could have greater impact to the company. While greater clarity is needed to estimate the ratio, the company provided a loose estimate of low 4%.