10-Q: Bank of New York Mellon Reports Third Quarter 2024 Results, Revenue Up 5%

The Bank of New York Mellon reported a 5% increase in total revenue for the third quarter of 2024, driven by higher fee revenue and net interest income.

Summary

• The Bank of New York Mellon (BNY) reported a net income applicable to common shareholders of $1.11 billion, or $1.50 per diluted share, for the third quarter of 2024.
• Excluding notable items, net income was $1.13 billion, or $1.52 per diluted share.
• Total revenue increased by 5% to $4.648 billion, primarily due to a 5% increase in fee revenue and a 3% increase in net interest income.
• Fee revenue growth was driven by higher market values, net new business, and increased foreign exchange revenue.
• Net interest income growth was due to improved investment securities portfolio yields and balance sheet growth, partially offset by changes in deposit mix.
• Noninterest expense was flat, with higher investments and employee merit increases offset by efficiency savings and a reduction in the FDIC special assessment.
• Assets under custody and/or administration (AUC/A) increased by 14% to $52.1 trillion, and assets under management (AUM) increased by 18% to $2.14 trillion.
• The company returned $1.1 billion to common shareholders, including $725 million in share repurchases.
• The Common Equity Tier 1 (CET1) ratio was 11.9% under the Standardized Approach.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong revenue growth and increased assets under management. While there are some cost pressures and credit risks, the overall tone is optimistic and indicates a healthy financial position.

Positives

• The company experienced growth in both AUC/A and AUM, indicating strong client activity and market performance.
• The increase in net interest income suggests effective management of the balance sheet and interest-earning assets.
• The company's capital ratios remain strong, with a CET1 ratio of 11.9% under the Standardized Approach.
• The company returned a significant amount of capital to shareholders through share repurchases and dividends.
• The company's pre-tax operating margin was 33%.

Negatives

• Noninterest expense was flat, but increased 1% excluding notable items, indicating some cost pressures.
• The net interest margin decreased 2 basis points compared with the third quarter of 2023.
• The provision for credit losses was $23 million, primarily driven by increases in the allowance related to commercial real estate exposure.

Risks

• The company is exposed to credit risk, particularly in its commercial real estate portfolio.
• Changes in deposit mix could negatively impact net interest income.
• The company is subject to market risk, including interest rate and foreign exchange risk.
• The company is subject to extensive government rulemaking, policies, regulation and supervision that impact its operations.
• The company is exposed to cybersecurity risks and potential technology disruptions.

Future Outlook

The company expects to continue developing its digital asset capabilities and to work closely with clients to address their evolving digital asset needs.

Industry Context

The results reflect the ongoing trends in the financial services industry, including the shift towards lower-fee asset management products and increased demand for outsourcing solutions.

Comparison to Industry Standards

• The company's growth in AUC/A and AUM is consistent with trends in the asset servicing and investment management industries.
• The company's capital ratios are in line with regulatory requirements for large financial institutions.
• The company's performance is comparable to other major custody banks and asset managers, such as State Street and Northern Trust, although specific comparisons would require a more detailed analysis of their respective financial results.

Legal Proceedings

• BNY has been named as a defendant in a number of legal actions brought by MBS investors alleging that the trustee has expansive duties under the governing agreements.
• Three lawsuits remain against Pershing in Louisiana and New Jersey federal courts, which were filed in January 2010, October 2015 and May 2016.
• On Nov. 12, 2021, the court dismissed the class action against The Bank of New York Mellon; on Dec. 15, 2022, an appeals court reversed the dismissal and returned the case to the trial court for further proceedings.
• On June 28, 2024, an unincorporated association that claims to represent the interests of Stanford investors filed a lawsuit in New Jersey federal court against The Bank of New York Mellon, making the same allegations as prior cases.
• On Aug. 22, 2014, Postalis sued DTVM in Rio de Janeiro, Brazil for losses related to a Postalis fund for which DTVM is administrator.
• On March 12, 2015, Postalis filed a lawsuit in Rio de Janeiro against DTVM and BNY Administrao de Ativos Ltda. (Ativos) alleging failure to properly perform duties relating to another fund of which DTVM is administrator and Ativos is manager.
• On Dec. 14, 2015, Associaco dos Profissionais dos Correios (ADCAP), a Brazilian postal workers association, filed a lawsuit in So Paulo against DTVM and other defendants alleging that DTVM improperly contributed to Postalis investment losses.
• On Dec. 17, 2015, Postalis filed three lawsuits in Rio de Janeiro against DTVM and Ativos alleging failure to properly perform duties with respect to investments in several other funds.
• On Feb. 4, 2016, Postalis filed a lawsuit in Brasilia against DTVM, Ativos and BNY Alocao de Patrimnio Ltda. (Alocao de Patrimnio), an investment management subsidiary, alleging failure to properly perform duties and liability for losses with respect to investments in various funds of which the defendants were administrator and/or manager.
• On Jan. 16, 2018, the Brazilian Federal Prosecution Service filed a civil lawsuit in So Paulo against DTVM alleging liability for Postalis losses based on alleged failures to properly perform certain duties as administrator to certain funds in which Postalis invested or as controller of Postaliss own investment portfolio.
• On Oct. 4, 2019, Postalis and another pension fund filed a request for arbitration in So Paulo against DTVM and Ativos alleging liability for losses to an investment fund for which DTVM was administrator and Ativos was manager.
• On Oct. 25, 2019, Postalis filed a lawsuit in Rio de Janeiro against DTVM and Alocao de Patrimnio, alleging liability for losses in another fund for which DTVM was administrator and Alocao de Patrimnio and Ativos were managers.
• On June 19, 2020, a lawsuit was filed in federal court in Rio de Janeiro against DTVM, Postalis, and various other defendants alleging liability against DTVM for certain Postalis losses in an investment fund of which DTVM was administrator.
• On Feb. 10, 2021, Postalis and another pension fund served DTVM in a lawsuit filed in Rio de Janeiro, alleging liability for losses in another investment fund for which DTVM was administrator and the other defendant was manager.
• On June 2, 2016, the Silverado Maximum Fund sued DTVM in its capacity as administrator, along with Deutsche Bank S.A. Banco Alemo in its capacity as custodian and Silverado Gesto e Investimentos Ltda. in its capacity as investment manager.
• German authorities are investigating past cum/ex trading, which involved the purchase of equity securities on or shortly before the dividend date, but settled after that date, potentially resulting in an unwarranted refund of withholding tax.
• The Company has been responding to a request for information from the SEC concerning compliance with recordkeeping obligations relating to business communications transmitted on unapproved electronic communication platforms.
• The Company has been responding to investigative requests for information and records from the SEC concerning Pershing LLCs compliance with its obligations under SEC Rule 15c3-3, among other regulatory rules and statutes.

Stakeholder Impact

• Shareholders benefit from increased earnings, share repurchases, and dividends.
• Clients benefit from the company's strong performance and growth in assets under management and custody.
• Employees may benefit from the company's continued growth and success.

Next Steps

• The company will continue to develop its digital asset capabilities.
• The company will continue to work closely with clients to address their evolving digital asset needs.

Key Dates

Keywords

financial results, revenue, net income, assets under custody, assets under management, capital ratios, share repurchases, dividends, fee revenue, net interest income, financial services, banking